Saturday, August 20, 2016

I’m considering breaking one of my own rules

When I was a financial advisor, many of my clients worked for publicly traded companies and often had significant portions of their nest egg invested in their employers stock. Many companies have employee stock purchase plans (ESPP) that allow you to purchase stock (often at a discount) that accumulates similar to a 401k, but without diversification. A lot of large 401k plans also have company stock as an option for your 401k contributions. Combine these two methods of buying company stock with paternalistic companies with multi-generational histories and you end up with people who have 90+% of their net worth tied up in company stock.

My advice was always to sell off the company stock and diversify. Did no one learn anything from Enron? If you have too much of your world tied up in company stock and things go south, you have risk of losing your nest egg AND your job. It is riskier for you to own shares of your employer than it is for someone who doesn't also work there. Trying to convince people to sell company stock was always a difficult conversation, and I likened it to telling someone their kids were ugly. Holding the same stock for decades, people often would feel that the stock was partly responsible for their financial success, even if the stock had been a terrible performer.

My current employer is a large, publicly traded company, and I have made it a point to avoid buying any shares of stock. In addition to my concerns about diversification, because I work in finance I often have access to confidential information and so am only able to trade the stock during certain times (i.e., no transactions allowed near earning release dates or other major events).

From the time I was hired, our stock is up considerably (>3x), but so far this year hasn't really kept up with the rest of the market. I attended a leadership meeting this past week and while listening to the CEO and CFO speak, I found myself thinking "Wow, we're doing really well and our future is bright. Why don't I have any shares of our stock?" I came home and mentioned this to my wife thinking/hoping she'd tell me to snap out of it and don't do something stupid, but instead she just said "if you want to buy a few shares, just keep it small.

In the not too distant future, I could be in a position where a portion of my compensation is given in the form of company stock. At that point, what I decide to do with the stock will make a larger difference in my overall plan. My current strategy for stock received from my employer is to immediately sell at least half of any stock given, but to keep a small amount to show confidence in the work I am doing. Keeping stock that was granted to me somehow feels different than proactively going out and buying shares on my own though.

So here I stand…I'm probably only talking about a couple hundred dollars, which really isn't going to make a difference long term, it's more about the principle and not wanting to deviate from the advice I've given to so many other people.

Wednesday, August 17, 2016

How I got an MBA without any student loans

I am frequently asked for my opinion on whether to get an MBA and things to consider when applying to business school. Now, with the benefit of hind-sight, it's worth sharing what I've learned and how my opinions have developed.

When I graduated from college the first time, I was so sick of school that I remember saying that I would never again go back to school. With my bachelor's degree in hand, I started working in a call center for a large financial services company for $35,000/year plus bonuses and overtime. It wasn't long before I noticed a trend among senior people in the organization. I noticed that for everyone at the director level or higher had either worked their way up to that level over the course of 15-20 years at the company, or had gotten there within 5 years of completing an MBA. This realization caused me to retract my earlier statements about never going back to school and instead start to do research on MBA programs and gather a lot of information from people who had earned their MBA's.

I decided to get an MBA part-time and was able to do so without taking out any student loans. There aren't many things I would change in the way that I approached business school, but every situation is different. If you're considering an MBA there are a few things you should consider that I'll weigh in on here.

What do you want an MBA to do for you?

Make more money, right? When you apply to most business schools, they'll typically ask you why you want to get an MBA. Let me give you a hint: Making more money is not the right answer. More money may be a natural byproduct of other decisions, but what most business schools are looking for is for you to be able to have a clear career goal and to recognize how an MBA will help you reach that career goal. In my case, I knew that I wanted to switch careers, but that it would be difficult to do so without going back to school. I wanted to either transition from the customer facing side of financial services to the investment management side of the business, or to leave the industry entirely and work in corporate finance (the route I eventually went). As you begin to grow your career, it becomes harder and harder to switch to new paths but going back to school for an MBA gives you another chance since many companies recruit at schools with the understanding that you've learned enough to have the foundation necessary to start working in most any business function

What is your current career path without an MBA?

Before you go and drop tens of thousands of dollars on an advanced degree, you should take time to evaluate your career. Have you advanced as you hoped you would? If not, why? What are the long-term opportunities in your chosen profession? What level of income do you need to support your ideal lifestyle and is that attainable in your field? In my case, I didn't need to pursue an MBA to make more money, but did need it to be able to transition to a different function.

Does school choice matter?

Nowadays, an MBA from a top business school costs around $100,000 in tuition, but there are some schools where you can earn an MBA for a fraction of the cost. Is the difference worth it? There are varying opinions on this, but I generally agree that the more expensive schools can be worth the cost in certain circumstances. If you're just interested in getting the basic education that an MBA has, then most schools can meet that criteria and you probably don't need to shell out the money for the most expensive programs out there. If you're looking to have an MBA help you transition to a new industry or gain a position of influence in a large organization, then you probably need to consider a school that is well known, and frequently visited by recruiters. Also, there are some companies and industries that you have almost no chance of joining unless you are a top student at a top school (i.e. consulting and investment banking).

I have multiple friends who have received MBA's from schools with no prestige or brand recognition, expecting to graduate and get job offers similar to what you see in WSJ or US News & World Report rankings. I'm not sure how they thought that would happen, and they have since been disappointed as their MBA's have not helped them increase their income or get promoted. From an ROI perspective, the tuition was a bad investment.

On the other hand, an MBA from a well-known or prestigious school can give you access to deep alumni networks and open doors that may not be available to you otherwise. Case in point: at work, my department hires 4-6 interns each summer from hundreds of applicants. This summer, we have had an intern from Harvard and another from Yale. They didn't get the job based on the schools they are attending, but simply having Harvard and Yale on their resumes got them interviews, something that probably wouldn't have happened if they were from another school we weren't actively recruiting at.

When I was thinking about going to graduate school, I was introduced to a Harvard alumni who took me out to lunch. Over lunch, he said something that has stuck with me and highlights the power of a strong network and brand. Speaking about his job, he said "this is a pretty good job, but at the end of the day it's just a job. Because I went to Harvard, if I lost this job today I could have another job by tomorrow paying at least $250,000 a year." I was a bit turned off at his arrogance but have since learned that there is some truth to his statement. I didn't end up attending Harvard, but did go to a school that was highly ranked with global brand recognition. As a result, my professional network now includes highly ranked people in companies of all industries throughout the world.

(Side note – anyone remember this commercial? Totally reminds me of how that Harvard guy might have been at work)

Full-time or part-time?

When I was looking at going back to school, I was working for an employer that had a very generous tuition reimbursement program that paid up to $10,000 per year. Even without tuition reimbursement, between my wife and I we were making about $100k per year and it seemed feasible that we could budget to pay for school as I went if I went part-time. I knew that for me, the part-time track was going to be best and so I researched the top part-time programs and was fortunate to be able to transfer across the country to the same city as my top choice for business school. Unless you've saved a ton of cash or land scholarships that also cover living expenses, the part-time MBA is the only way I can think of to get an MBA without student loans.

If you think a part-time MBA is right for you there are a few things to consider.

Does the school you're looking to attend also offer a full-time MBA? Is a part-time MBA viewed as identical in rigor? You are selling yourself short if you go for a degree program that is easier, and you will not be as well prepared for a post MBA job search.

If considering an online option, what opportunities are available for group work and collaboration? Much of the value I got from business school was in the interaction with classmates in lectures and group work. Also, while online programs are gaining in popularity and are certainly attractive because of their relative cost, most recruiters I know will automatically dismiss a resume from a candidate with an online MBA (some employers will ignore part-time students even from top schools).

To what degree will you have access to on-campus recruiting? Some schools don't allow part-time students to access the same on-campus recruiting assets as full-time students. (For example - NYU part-time students do not have access to any on-campus recruiting).

What elective courses are available in the times that you will be able to attend? Some electives may only be taught during the day, which can be challenging if you are attempting to juggle work with school.

Will you be able to finish in a reasonable amount of time so that you aren't seen as having 'too much experience' by recruiters? Most recruiters on business school campuses are looking to candidates with 3-7 years of work experience. If you have too little, you're viewed as lacking business maturity and if you have too much people think there must be something wrong with you if aren't already at or above the pay grade and responsibility levels that they are recruiting for. I didn't really think about this when I started my MBA, and took five years to complete my degree. When it came time for me to look for jobs, I was right on the edge of having too much experience and I had grown my career and income to the point that I would have to take a pay cut to pursue any of the on-campus recruiting opportunities available.

Student Loans

When I first started my MBA, we had a friend who was finishing up law school at the same university. He had racked up around $200,000 in debt to earn his law degree and had a fabulous offer that would pay nearly $200,000 per year. The only problem was that the entire reason for him to go to law school was to work in a part of law that would only pay around $75,000 per year. $75,000 sounds like a decent income, but is swallowed up incredibly fast if you're trying to live in a large metro area and pay off nearly 3x your annual income in student loans. This was the first of many people I would meet throughout my time in business school where people would accumulate large amounts of debt and take jobs they knew they would hate, but do so because they could earn more.

What I've observed is that large student loans cloud your judgement. If you work hard and sacrifice to avoid student loans, you won't feel as pressured to do something you may regret simply to clean up you mess. When I got my first job after business school, I wasn't paid any more or any less than my peers who were hired with me, yet my income naturally went much farther since I didn't have any student loans to repay.

A Debt Free MBA is possible, but not without sacrifice

To anyone who asks, I always will share that I am glad I did it, but don't believe that for me it would have made sense to do it with student loans. Twice a year for five years we had to write checks for tuition ranging from $8,200 to $13,200, which was about 25% of our take home pay at first. Even with roughly half of the tuition being reimbursed, it took careful planning to make sure we had the cash for each semester.

To avoid student loans, we had to keep a careful watch on our expenses. Some examples of things we did to save money while in school:

  • For years my packed lunch would be PB&J

  • After selling a car to get out of debt faster, we remained a one-car family for several years and carpooled with each other every day

  • We rarely ate out. By rare, I mean really rare. For all of 2009, we spent about $300 eating out including food on vacation or even little McDonalds trips

  • We didn't spend much on entertainment. No theme parks, maybe once a year to the movies, only one football game per year (often with a free ticket)

  • I didn't get a smartphone until 2011, and even then it was a pre-paid phone – my wife didn't get one until 2014

  • We had our first child while in business school and dressed him almost entirely in consignment sale clothing (our kids still wear mostly consignment sale clothes)

  • We didn't own a television for all 5 years of business school, so no cable bill either (our old TV set didn't make the move cross country and we never ended up buying a new one)

Personally, I wouldn't have done things any different, but I understand that everyone's situation is their own. Hopefully some of the things I've learned with the benefit of hind-sight can be helpful to you if you are facing similar decisions. I'm fortunate that I was able to attend a top business school and am just as proud of graduating without student debt as I am for graduating with honors. I initially took a pay cut to switch industries and functions, but have since recovered nearly all of the reduction now in the form of guaranteed salary instead of unpredictable commissions and bonuses. If you have any questions about business school or MBA's, feel free to reach out at: contact@diymoneystuff dot com.

Sunday, August 7, 2016

Thank you, YouTube

I'm a big advocate of do-it-yourself solutions and do most things myself around the house and with money management. Between my wife and I, there aren't many things we can't do or figure out how to do around the house. One skill that isn't in my wheelhouse though is fixing cars. Growing up, I never got much experience working on cars and we didn't really have any motorized toys on which I could have learned about engines. In recent years, I've had to accumulate a lot more motorized yard equipment and tools (riding lawnmower, push mower, leaf blower, weed-eater, chainsaw, pressure washer, etc), most of which have needed some type of maintenance or repair.

Whenever something has needed to be fixed, I've learned that I can find out how to fix pretty much anything on YouTube. I found the knowhow there to take apart my riding lawnmower and change some pulleys and belts, repair the carburetor of my push mower, and more. When it comes to fixing cars, I've always been reluctant to do anything serious myself since the risk/reward doesn't seem to be worth it. If my lawnmower doesn't get fixed quickly, my grass gets long. Not too big of a thing in the big picture.

If my car breaks down though, I need it fixed pretty quickly to not disrupt my work schedule. If it isn't done properly, I could put myself or other drivers in danger. Add to equation that I live 25 miles from work and you can see how I rely on my vehicles much more than anything else I own with a motor.

As I pulled my wife's car into the garage tonight, the engine mysteriously died just before I could turn the ignition off. It seemed odd, so I tried to start it back up, but it wouldn't start. Luckily I was already home when this happened, but it was still troublesome. Then when I opened the door I smelled gas. Not good. To be safe, I put it in neutral and pushed it back out into the driveway (surprisingly easy for a truck that weighs around 6,000 pounds). When I tried to start it again with the door open, I heard fuel dripping onto the driveway as soon as I turned the key. Again, not good. At this time, I started to go through my options. I figured I could get it towed to a nearby mechanic, where I'd pay ~$90 for diagnostics and then at least $50 for a repair if it was as simple as reconnecting something that had come loose, but potentially a lot more if the problem were larger. Option two was to do a little bit of my own investigating to see if it was something I could fix myself and only go to a mechanic as a last resort. Naturally, I went with option 2.

With just a few minutes of Google and YouTube searching, I found a few possible solutions and went back out to look underneath the car to see where the leak was coming from. Sure enough, the fuel line connection to the fuel filter had come loose (see the following picture) and in just a few minutes I was able to reconnect everything and we were back in business. I'll want to keep my eye on it and, if it starts to reoccur, look into replacing the part since it's not acceptable for it to come loose, but from what I've researched we should be good to go.

I love that we're in a spot financially that if I did need to take the car to the shop it wouldn't be a financial burden, but really didn't want to deal with the hassle of getting it to the shop, picking it up, etc. We definitely live in an incredible day and age with so much information at our fingertips, thanks to YouTube and some random people posting videos of themselves fixing their vehicles.

Tuesday, August 2, 2016

July 2016 Net Worth Update – up to $563k!

Even though this month has been really expensive for us, our net worth increased over $15k to $563,304. We made some progress on some home projects including tree removal and exterior painting. We also took a one week trip to London that had been planned for a while. The fear of Brexit caused the stock market to go into a frenzy several weeks back, but the currency was conveniently at historic lows for our trip. While we benefited from favorable exchange rates and did our best to travel on the cheap, there is only so much you can do to cut costs when visiting one of the more expensive cities in the world. We rented a 2BR apartment through Airbnb that was about 1 mile from most of the main sites and relied heavily on public transportation. (Side note, if you're travelling in London with small children do your best to learn the bus routes – they were way more prevalent and much easier to navigate with a stroller than the tube).
Here's an updated look at our numbers.
CASH: Our cash balance is down a bit, mainly from paying $3,500 for tree removal (it ended up being 17 trees). I hate paying other people to do work on my house, but the crew did in one day what would have taken me years to do on my own so it was worth it (plus some of the trees were close to the house and I don't trust my chainsaw skills enough to risk damaging the house). For our trip to London, we had already paid for our airfare and accommodations in a previous month so this month we really only had to pay for our food and some sightseeing.

INVESTMENTS: Up $13k – we'll take it! Not that it means anything, but it is fun to see that number over $300k for the first time. We haven't made any changes to our allocations and keep contributing to my 401k. I like to keep this pretty boring, if you haven't noticed.

CARS/HOUSE: Nothing really to report here – over time, I expect cars to depreciate and real estate to appreciate and they both moved in the expected directions this month.
Speaking of real estate – while letting the kids get some energy out at a playground near our London apartment, I struck up a conversation with some teenagers who lived nearby and were hanging out at the park. They found me to be a novelty (an American staying in their neighborhood instead of a more 'posh' part of town), and I found them to be pretty remarkable too (teenagers who were incredibly informed about the world around them, including the American political system and even the platforms of our current candidates). The topic of real estate came up and they asked me how much I thought a particular nearby house would cost if it were located in my home town. It was a smallish condominium similar to the one we were renting and I guessed that it would be worth a few hundred thousand dollars in an expensive part of town. I just about lost my lunch when they told me that it had recently sold for 1.5 million pounds! That's like $2 million and we were nowhere near the 'posh' part of town. I seriously don't understand how families can afford to live there.

MORTGAGE: We still paid a little extra on our mortgage this month but reduced the extra to make sure we didn't have to dip into savings for some of the other large expenses. Our current expected payoff for the mortgage is June 2022, but that has been creeping forward as we continue to increase the extra payments we are making.
It's nice to back on this side of the pond and back to reality. We are blessed to be able to have experiences like our recent trip while still working towards our other financial goals and not at their expense as I'm afraid is more common. We've come a long way but still have a ways to go for full financial freedom.