Free Money Finance

The Value of Education

Fox Business shares some data that highlights the value of education. The highlights:

Based on the assumption of a 40-year work history (from age 25 to 64) and using 2011 dollars for its example, the Census Bureau finds that full-time workers' lifetime earnings capacity soars as their education level rises. Non-high school graduates with a ninth through 12th grade education level and high school graduates in its example bring home $936,000 and $1.1 million in earnings over their lifetimes. Individuals with at least some college experience netted an average of $1.6 million, while those with an associate's degree brought home $1.8 million over their lifetime.

The data showed that people graduating with a four-year bachelor's degree earned an average of $2.4 million over their lifetime in 2011 dollars, with people attaining a master's degree bringing home $2.8 million. More specialized degrees, such as a doctoral or professional degree (for example, law or engineering), led to lifetime earnings of $3.5 million and $4.2 million, respectively.

To summarize, average lifetime earnings are:

• Non-high school graduates: $936k
• High school graduates: $1.1 million
• Some college: $1.6 million
• Associate's degree: $1.8 million
• Bachelor's degree: $2.4 million
• Master's degree: $3.5 million
• Doctoral degree: $3.5 million
• Professional degree: $4.2 million

Several thoughts on this info:

• There's an on-going debate about whether or not education is worth it because of 1) cost/debt incurred and 2) the time it takes to earn a degree takes away from the number of years you earn an income. I think this data shows that educations is generally worth it (by generating more lifetime income) even given these two factors.
• Using data from ages 25 to 64 seems to limit the value of some degrees. Many (most?) people have their Bachelor's degree by age 22 or 23 and many (most?) work way past 64. So it seems like the value of some degrees are understated. Even those with no degree could begin working at 18 or younger and work well past 64, making the non-high school graduates and high school graduates numbers higher too.
• You can maximize the financial value of any degree by 1) cutting college costs (and time) in getting the degree and 2) working at your career so you make more than average. The above incomes are the average figures, but who says you have to be average? Even being just a bit above average will earn you a tremendous amount more over the course of a working career.
• I'm not sure if an MBA counts as a Master's degree or a professional degree. Getting my MBA was certainly one of the smartest money moves I've ever made. I "only" worked 28 years and made well more than $4.2 million. That said, all that income wasn't from my career -- a decent amount was from investments (which my career enabled) and from a few side businesses.

Overall, this data seems to clearly show the value of an education, especially one done right (the lowest costs possible and the highest earnings possible). Anyone think differently or like to support what's above?

Podcasts that Provide Great Value

On my post titled Almost Infinite Investment Return, I had one reader ask me what podcasts I listened to (thinking that something we get for free could certainly have an infinite return). I responded there, but also thought it would be fun to post these for all to see and we could each share the podcasts we like. Here are my top podcasts:

• This is Your Life -- Great for both career and life. Ex-CEO Hyatt knows what he's talking about as he speaks on work, productivity, and developing a platform. I know him personally as well, so it makes listening to his podcast extra special.
• Smart Passive Income -- Pat Flynn knows blogging and I always leave his show with several ideas and insights -- not just for my blog but for my work-life as well.
• Freakonomics -- These guys always have a fun look at what we all consider to be "common knowledge."
• Entrepreneur on Fire -- This show has lost a bit of excitement for me as the first guests were much better than the ones these days (on average). But I love the monthly income updates. Anyone who can earn $100k a month from podcasting needs to be listened to!

I listen to a few others, but these are the main ones.

You might notice a glaring hole -- there are no personal finance podcasts on my list. It's because I've yet to find one with a format I like. I prefer something about 30 minutes long and is entertaining, interesting, and informative. I've yet to find that in personal finance podcasting, and believe me, I've tried.

How about you? Do you have any podcasts you absolutely love/recommend? Please let them in the comments below.

Personal Finance is Now a Required High School Class

Not that this is new news for everyone as I'm sure many high schools have offered personal finance classes for some time, but here's a story originating from a town near where I used to live. It's about the Rockford, Michigan high school now requiring a personal finance class for all seniors. The details:

The Dave Ramsey curriculum is used as the foundation for the course. Ramsey is a personal money-management expert. Units of study in the course include: Saving and investing, credit and debt, financial responsibility and money management, and insurance/risk management and income/careers.

I would have LOVED to have had something like this when I was a senior in high school. First of all, it's probably an easy "A." :)

But seriously, having just the basics that Dave teaches would have saved/gained me 10 years or so in my budgeting/saving/investing life -- and we all know how valuable time is in growing your wealth. Having an extra decade for growth would have been worth a FORTUNE!

Fortunately I still got with the program relatively early in life. I read The Millionaire Next Door, started to apply the principles, and the rest is history.

How about you? Did any of you have a personal finance class in high school? Did it help? And what do you think about personal finance education? So many articles seem to say it doesn't work. What do you think?

Teaching People Personal Finance is One Key to Helping Them Escape from Poverty

We've recently had a couple posts where it seems that if someone took the time to teach needy people about how to handle money, then they would have a MUCH better chance of pulling themselves out of poverty.

• Exhibit #1 -- Two More Extreme Makeover Home Edition Homes in Trouble

The general consensus here is that if the ABC producers would give the home recipients a simple money management course (how about instead of the trip to Disney World -- or maybe in addition to it), that they'd be in a better position to keep, manage, and maintain their home/mansion.

• Exhibit #2 -- My Issue with How Tax Money is Spent. Check out this comment:

I've had a lot of poor friends, and a lot of friends on food stamps.

For the most part, they were TOTALLY clueless as to how to shop in a frugal way -- which is often whey they were on food stamps in the first place. Every one of them spent more per person than I do on food (at the same store, so don't give me that "poor selection" garbage.) I remember shopping with one friend and convincing him to put back $50 worth of meat, and buy a big $2 bag of potatoes instead. He was astonished when he made it to the end of the month and still had food to eat.

What about just a BIT of education here? Wouldn't that go a long way to helping them manage their money as well as their government assistance? Then again, maybe people aren't interested in learning or maybe trying to get people to care about managing "free" money is simply pushing water uphill.

What's you take on these issues?

The College Degree is Not Dead

Here's a piece from the Wall Street Journal which talks about the declining value of a college degree. But if you read deeper into the article, it notes that there's still a huge advantage to having a college degree. To note:

To be sure, the average American with a college diploma still earns about 75% more than a worker with a high-school diploma and is less likely to be unemployed.

I think they're trying to create a story where none exists.

Ok, maybe a small one exists -- maybe a college degree isn't worth as much as it once was. Maybe and maybe not. Anyway, here's my take on the whole issue of the value of a college degree:

1. Any loss in value of a college degree is likely due to the fact that more and more people are getting degrees than ever before. As such, the supply of college-educated workers has grown while demand has likely seen less growth. And when that happens, prices (in this case salaries) decline. Of course this varies by degree/job type, so selecting your salary is significantly impacted by the selection of your major/occupation.

2. A college degree is still worth the investment. Earning 75% more than a non-degreed worker is a big deal -- and can mean a boatload more money over the course of a working career. For specifics on the payoff, see College Degree Worth an Extra $23,000 per Year and College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million).

3. To be prudent financially, you need to match the cost/debt of college versus the expected payout. In other words, borrowing $100,000 for a job that pays $18,000 a year probably isn't a great financial move. Then again, borrowing $100,000 for a career that pays $500,000 a year probably is. Of course you need to take into account what you'll like doing, but even so, the first numbers likely will doom you to financial hardship even if you love what you're doing. Translation: you better REALLY love it, because it will make much of the rest of your life difficult.

4. No matter what degree you get, you need to actively manage your career once you graduate in order to get the most possible return from the degree. For my specific thoughts on this issue, see This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly, Maximizing Your Greatest Asset: Why Your Career is So Important, and Your Most Valuable Asset.

The Top Five In-Demand Majors

In case you were wondering, here are the top five in-demand majors (I can't tell if the salary assigned to them is a starting salary or an average):

1. Mechanical Engineering ($57,821) -- Job outlook: As more engineers retire, and many professionals transfer to managerial positions, job opportunities are good.

2. Accounting ($47,429) -- Job outlook: Thanks to retirees and a faster-than-average job growth due to new business and changing financial laws and regulations, accountants can enjoy favorable job opportunities.

3. Finance ($48,616) -- Job outlook: Personal financial advisors are projected to be among the 10 fastest-growing occupations. Though job growth is strong across the board, competition is still keen for finance positions.

4. Business Administration/Management ($44,195) -- Job outlook: Jobs are projected to grow as quickly as average among all occupations. Competition for top-level business administration management jobs will be high while more opportunities will exist for lower-level management jobs and facility managers.

5. Civil Engineering ($50,940) -- Job outlook: Employment growth for civil engineers is expected to move at a pace that is faster than the average for all occupations.

#3 made me laugh. Are you sure they didn't mean "salesman"? ;-)

My Money Advice for Graduates

The Money Blog Network is doing a group writing project this week on financial advice for graduates and this is my contribution.

I've written about this topic quite a bit (much more than I thought I had when I started searching for posts on my site.) Here's what I came up with:

• Graduate’s Guide to Finances

• Advice Graduates Don't Want to Hear

• More Money Advice for Graduates

• Even More Money Advice for Graduates

• Simple and Life-Changing Advice for Graduates

• Five Frugality Tips for College Grads

• Great Financial Advice for Graduates (And the Rest of Us Too)

• Six Debt Tips for College Students and Recent Grads

• Great Gift for Graduates: Four Pieces of Financial Wisdom

• For College Graduates: Learning to Live on Your Own, Part 1

• Great Suggestions on How to Handle Your Finances for College Graduates and the Rest of Us Too

Needless to say, I don't have a lot new to say to graduates. But I will offer these two points:

1. Good, basic financial advice works for everyone -- including college grads.

2. There is one piece of advice that I think is the best for everyone.

Congratulations, graduates!!!!!

And for your reading pleasure, here are other posts on this topic from MBN members:

• Welcome to the new world: My best advice for the new grads

• Personal Finance Made Easy: Pay Yourself First

• Financial tips for college graduates

• A fully-funded Roth IRA at age 18 could net you 3.5 million dollars

• Four Tips for Recent Graduates

• Graduates: You Might Be Shocked

Perspective on an MBA

Here's a recent comment on my post titled The Value of an MBA that I thought you all would want to see. It provides some interesting insights/opinions -- especially for those of you considering an MBA:

I think there is a lot of misinformation conveyed above. There are really 2 distinct issues at hand when evaluating getting an MBA. First, improved/incremented knowledge and performance in your job. Second, increased job and career opportunities. In the first instance, getting an MBA if you are NOT educated about business AND work in a business/administrative capacity should clearly provide a benefit AND over time performance improvement and progress simply because you can do your job better. That will probably not propel your career at a vastly accelerated rate BUT should be helpful unless your company has no appreciation for improved work quality. You will still be impacted by all the other work processes/idiosyncrasies like politics, openings, growth or lack thereof creating opportunities etc. You also have to look at the culture of the company and see if having advanced business skills and knowledge are appreciated, acknowledged, utilized and rewarded. In some companies they are not due to size, family ownership etc. There is generally some opportunity cost to getting an MBA, whether time, money etc. You need to look and see objectively if you can get ahead with whatever degree you have or whether there is an "opportunity" premium associated with the degree.

In the second case, getting increased opportunities to really impact your career is probably reflective of going to a Top 10-20 school. However, you have to look at who recruits at the school, where their graduates focus and who they work for. National schools still have their niches. The cost is high for attending if you have to pay BUT generally you will leverage your pay significantly AND also the range of opportunities available to you. If, however, you are past 40 AND not say an ex military officer the benefit might be minimal. In many cases, at that point your career is established and the MBA is like frosting vs. flour. One finishes you off vs. being a core piece of development. The ideal MBA candidate is in the mid 20s-30 with at least 3-5 years of large business or organization experience. There is more appreciation for small company experiences than when I went to get my MBA at the University of Michigan in 1980. Then it was all large corporation focused...GM, GE, IBM, P & G etc. Now with the growth of venture capital, entrepreneurship, high growth companies etc the view is different. Getting a top 5 MBA like I did, opened doors which would not have otherwise been open especially with a BA in history and economics. It enabled me to move out of field sales into consulting, financial and strategic planning then marketing and general management. It gave me the background to do all those things successfully and the confidence to believe in myself due to increased skills and knowledge. It gave me a very good network of graduates to tap into. That especially is of very high value over the long run. Ultimately, 10 years out you have to be able to deliver but the MBA can open doors, enable you to perform and give you momentum with a good earnings stream. It also gives you the ability to be adaptive, deal with change, understand it in a broader context and should make you better able to be strategic and more objective and hopefully more flexible. Those are all key attributes in the business world. In terms of ROI, the payout is not just immediate but also in terms of momentum, that received and that which you can develop yourself due to the skills from the degree.

Realistically, you can also develop many of these skills by attending a good BBA program like Michigan, Wharton etc. Getting a law degree with lots of business courses also prepares you very well for business, especially in terms of critical thinking. The MBA will give you more soft business courses but a JD with accounting, finance, and some management courses will do good things too if the rest of the focus is business law. In today’s environment, the legal requirements and government involvement are omnipresent.

BTW, if you have a top BA many investment banks, consulting firms, and some other firms, all large, Fortune 500 types will provide you outstanding training that is as good as an MBA, mostly because the teachers are all MBA school profs doing "Exec" education. But that will not provide you the network of contacts, the degree, prestige etc but will give you good knowledge.

Good Luck.

Any additional thoughts on this?

Is Going Back to College Worth It? (Are MBAs Worth It?)

In Experience versus Education: Which Counts More in Career Success?, I talked about which of the two made the most difference in a person's career. As we all have discussed this issue through several posts, I think the general consensus is the following:

An education (degree) is often needed to open the door and get a good first job. The degree might also be important for later job opportunities, but generally the importance of the degree becomes less and less as a person's career advances -- and work experience becomes more and more important. In many cases, work experience eventually dwarfs education in importance later on in a person's career.

I realize that the above statement is very general and while it applies to most circumstances (at least in my opinion), there are tons of exceptions.

And here's a piece from Kiplinger that details the case against going back to school -- in this case, he highlights the MBA and how there's little need for it. His rationale:

• Rather than learning what you need, you're buried under mountains of information, most of which you'll never use, and the rest of which you'll probably long have forgotten -- or it will have become obsolete by the time you need it.

• You're often taught in a lecture class (the least effective way to learn,) or in a discussion section, in which you endure more professorial prattle punctuated by student comments often ignorant and/or designed more to impress than to edify.

• Worst of all, most professors are far less qualified than are master practitioners to help you prepare to be competent in your career. After all, they are people who deliberately opted out of the real world so they could study esoteric academic research questions. The more prestigious the institution, the more likely professors are to be hired, promoted, and tenured based on their research productivity, with little regard to whether they confuse or bore the pants off students.

Ha! This guy's singing my song!

I have to agree with him 100% on these. Grad school contained a ton of stuff I haven't used since, was full of meaningless discussions from people who didn't know how the real world worked (including me), and was taught by people who didn't understand the practicalities of American business. It was fairly worthless in preparing me for a career in business except for one thing -- it opened the door for me to get a job I could never have gotten otherwise (and certainly couldn't have gotten at age 24.) After that, my experience took over and my career took off. But I needed the MBA to get it started.

So what does he suggest you do instead of going back to school? He says you should enroll in "You U" -- a self-developed program where you:

• Have a mentor
• Read key articles and books
• Attend conferences
• Do apprenticeships alongside a master practitioner

By the way, I agree that each of these should be part of making the most of your career -- but you should be doing this whether or not you get another degree.

Anyway, the author suggests that you can open the doors that an MBA usually opens for you by writing a specific letter (included in the link above) that convinces employers that you've gone to You U and are a great hire. He claims the letter should be really effective:

I give talks to executives and often ask them, "Imagine you're an employer and you post a want ad that says 'MBA required.' and one applicant wrote this letter." I read the letter above to them. I then say, "Raise your hand if you'd interview him." Invariably, 80% to 90% do.

Ok, now who doesn't understand the real world?

First of all, would the executives even see the letter or would some HR intern weed it out since the guy didn't have an MBA? Second, would 80% to 90% REALLY interview him or are they just saying that in a bogus survey in an artificial environment? Third, an interview is not a job offer. It's far from it.

What do you think? Agree with the author? Agree with me? Something in between?

M.B.A.s Don't Prepare Managers for Real-Life Challenges

Yeah, that headline is a real shocker, isn't it? Not if you have your MBA. If you do have the degree, you know that the education itself is much less valuable in the "real-world" than the experience you get when working.

I'll give more of my thoughts on this issue in a bit, but for now let's check out what CareerJournal says about the MBA and how it prepares people for real-life challenges:

An M.B.A. provides the strong general education that an executive needs but it doesn't teach the skills needed in the day-to-day operation of a business, according to a survey of international executives.

Only 20% of the executives surveyed said that an M.B.A. prepares people to deal with the real-life challenges that a manager must face, according to the survey of 133 top executives at firms in the U.S., U.K., France and Germany by Egon Zehnder International, an executive search firm. Among the executives surveyed, 40% hold an M.B.A. themselves.

If I had taken this survey, I would have been with the 80% who said an MBA doesn't prepare people very well for real-world challenges. In fact, here are my overall feelings about an MBA:

1. I have an MBA and am glad I do. It has made a tremendous difference in my net worth through the years. I always say that your career is your most valuable financial asset, offering you many financial benefits. You can make the most of it by getting a college degree and managing your career to its full potential. Doing this well can earn you millions of dollars in extra income throughout your lifetime. An MBA has been a key part of success for me in this area.

2. I learned a lot while getting my education, but not much of it has been used in my almost 20 years of work experience since then. Yes, I learned statistics, corporate finance, operations and the like, but those where just "book learning" principles.

3. When I got into the working world, I learned MUCH more about business and the various disciplines than I did in school. Most importantly, I learned the difference between the way business was supposed to work (which is what they teach when you get your MBA) and the way it really works. And it's a huge difference.

4. The most valuable part of my MBA education was learning extra skills outside the classroom -- working with other highly-motivated people to accomplish a common task (without killing each other), managing my time to complete what seemed like an overwhelming list of tasks, and so on. These skills have served me well throughout my career.

5. The most valuable part (employment-wise) of an MBA to me has been that it opened doors for me that would have never been opened otherwise. It gave my career a big kick-start from the beginning and I think that's what it does for most people. Then, after time, the MBA becomes less and less valuable as a person's experience becomes more and more valuable. The MBA was necessary to get the person where she wanted to be initially, and after that, it's her ability that allows her to succeed or fail.

Value of an Advanced Degree Later on in Life

As I've stated before, I'm a big believer in education -- and how it can dramatically improve your lifetime earnings potential (and thus your net worth.) I've also noted that an MBA has had a substantial impact on my personal earning ability. But those facts aside, what is the value of an MBA -- or any higher degree -- later in life?

I'll start with my opinion: The later in life you get an advanced degree, the less it's worth. And it's not worth less simply because there are less years for you to use it (in other words, if you get an MBA at 25 you have 40 years to capitalize on it versus only 20 years if you get it at 45), but the rate of decline in value of an advanced degree accelerates as you get older. And past a certain age, maybe 40 or 45, it's fairly worthless if you're simply looking at the economic benefit involved. The one exception to this is if you're totally shifting careers/fields. In that case, it's as if you're fresh out of college and need an extra boost. In this circumstance, an advanced degree is valuable at a much later age.

So why do I say the value of a degree decreases more rapidly as time goes on? Because with each year, your education becomes less important and your experience becomes more important. The gap widens every year until eventually your work experience totally overshadows your education.

Consider the following:

• An executive who has a 20-year track record of being a bumbling manager, never delivers good business results, and is hated by his employees and co-workers. Now he gets an MBA. Is he worth more to the company? Is he worth more to any company? Probably not much if any. No one wants to hire a "loser" no matter what his degree.

• An executive who has a 20-year track record of being an excellent manager, always overdelivers on his assigned business targets, and is loved and admired by his employees and co-workers (who he can motivate to do anything.) Now he gets an MBA. Is he worth any more to any company? Probably not. He was (or should have been) well-paid before the degree and after getting the degree he's really not any better at what a company would hire someone like him to do.

In almost every case I've seen an older worker (40+ -- BTW, I'm in this category myself, so I'm NOT calling people over 40 "old," I said they were "older") go back to get a degree, especially an MBA, and stay in the same company, his/her pay and job title has remained virtually identical to the pre-degree pay. There has been absolutely no benefit economically to the degree. In fact, there could be a loss economically if the person forfeited two years of work (and pay) to get the degree.

Now I understand that to some people there is simply a "value in learning" that is in and of itself worth getting an advanced degree. I'm not talking about that here -- I'm talking from a strictly economic/pay standpoint. It's not a good deal later in life.

Furthermore, I'm looking at this as it pertains to the business world primarily -- maybe it's different in other disciplines. For instance, getting a doctorate later in life may still be worth it if you're a college professor. Or perhaps if you're a scientist. Maybe you can think of a few more instances where this is the case.

So what do you think, am I on target or just full of it? Let me know in the comments below -- I'm interested in hearing your opinion.

The Value of Financial Intelligence

Here are some thoughts from the book The Net Worth Workout: A Powerful Program for a Lifetime of Financial Fitness (see my rating for details) on the value of financial intelligence:

One of the most important steps in becoming financially fit [is] increasing your level of awareness of how you think about finances. According to Annamaria Lusardi, an economics professor at Dartmouth College, that step alone can add significantly to your bottom line.

Lusardi has shown that offering workers seminars on financial planning and retirement topics significantly increases their wealth. Such programs, according to the study, can increase employees' wealth by 15 percent to 20 percent -- regardless of their respective income levels.

I TOTALLY believe these numbers. In fact, they seem low if anything. I would think that if people learn just the basics of financial planning and apply them to their lives, they would be much, much, much better off -- much more than 20%. Then again, maybe it's the "and apply them to their lives" part that hampers the results. Maybe all of them get the education, but those who don't apply the learning -- probably a majority of people -- depress the results to "only" 15 to 20 percent.

So my suggestion is: Keep reading and applying the principles we talk about at Free Money Finance, and you'll be at least 15 to 20% better off financially. ;-)

More Education Equals More Pay

The Bogleheads' Guide to Investing (I LOVED the book -- see my rating for details) includes a chart that lists expected lifetime earnings per education level. The chart lists various education level and what people at those education levels can expect to earn throughout their lives (according to the U.S. Census Bureau.) The results:

• Some high school, no diploma - $1,000,000
• High school diploma or equivalent - $1,200,000
• Some college, no degree - $1,500,000
• Associate degree - $1,600,000
• Bachelor's degree - $2,100,000
• Master's degree - $2,500,000
• Doctoral degree - $3,400,000
• Professional degree - $4,400,000

Just to be clear, here's how Wikipedia defines professional degrees:

In the United States and Canada, professional degrees refer to academic degrees that are specific to a particular vocation or profession. Law school (JD or LLB), medical school (MD and DO), engineering school (BSc. or BASc. in Engineering, BEng., MEng., and DEng.), dental school (DDS and DMD), veterinary school (DVM), business school (MBA), physical therapy school (DPT), pharmacy school (BSc. in Pharmacy and Pharm.D.), schools of social work (MSW), art school (MFA), seminary (M.Div.), and architecture school (MArch) are examples of institutions where professional degrees can be earned.

I've noted several times that your career is your most valuable financial asset, offering you many financial benefits and that you can make the most of it by getting a college degree and managing your career to its full potential. I've also said that doing this well can earn you millions of dollars in extra income throughout your lifetime. It seems like this chart backs up these thoughts.

Want more information? I've got tons of it on how an education and good career management can significantly increase your income. Here are just a few of my posts on the subject:

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• Make the Most of a College Education -- It's Well Worth the Investment

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

• Which is More Important -- A High Starting Salary or Higher Average Salary Increases?

Best of Free Money Finance: College and Education Posts

Here's a list of what I consider to be some of the best college and education related posts here at Free Money Finance:

Saving on College Costs

• Save 50% on Education Expenses

• More Great College Savings Tips -- Save up to 50% Off College Costs

• Save Big on College: College for Half-Price

• Money Saving Tip: Save on College Courses

• Money Saving Tip: Save on College by Studying Abroad

• 4 Ways to Save Big on College Costs

• Save Big Money by Getting Good Grades in College

• A Great College Money Saving Tip

Why College is Such a Great Investment

• Make the Most of a College Education -- It's Well Worth the Investment

• Why Education is So Important to Your Financial Future -- And How You Can Pay for College

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• College is Worth the Expense

• Earn More by Going to College

• The Value of Education

• The Value of an Education

• The Value of an MBA

How to Save for College

• College Saving Reality Check: What You Can Do to Save Enough for Your Kid's College Expenses and How to Pick the Best 529 Plan

• Four Basic Ways to Save for College

• How to Evaluate 529 College Savings Plans

• Saving for College: The Benefits of 529 Plans

General College Posts

• Free Money Finance Guide to College Success

• Does an Elite College Really Pay?

• How Much College Debt is too Much?

• Most Lucrative College Degrees

• College Majors that Boost Your Paycheck

• The 10 Best Values in Public Colleges

Great Financial Advice for Graduates (And the Rest of Us Too)

Here's a piece from Marketwatch where the author gives money advice to recent high school graduates. There is lots of good stuff in this piece and I want to highlight (in green) a few of the parts I like best. I've added in my commentary where appropriate as well. Here goes:

Financial success starts with spending less than you earn, and using the surplus dollars to reduce debt or save for the future.

Bulls-eye!!!!!! It all does start with spending less than you earn -- it's the one way people of almost any income can become wealthy. But if you over-spend, it doesn't matter how much you make, you'll still be going backwards.

If you couple spending less than you earn with a great saving and investment plan, it's easy to get rich and earn a million (or two!).

If friends, neighbors and acquaintances are fortunate enough to do a little better financially, feel free to applaud their efforts, but don't try to keep pace. Most people feel like they are entitled to nice things; the truth is that they are entitled to what they can afford to pay for while still protecting their future. Allowing someone else's priorities and earning power to set your own financial life off-kilter is dumb.

Yep. In my opinion, this is one of the reasons so many Americans carry so much debt -- they see a friend get something and they want it (or something better). They don't worry about the financial consequences -- they just borrow to pay for it. Bad move.

Today's graduates will know they have reached a new level of money maturity when they are able to give some of their cash away. "Giving til it hurts" actually can feel pretty good, even if the money involved is a small amount. The sooner someone learns that, the better they will feel about how they handle money.

It's nice to see a financial advice piece talk about the advantages of giving. Not only does giving help others and make the givers feel good, but some think that giving is one of the keys to getting rich. Some call this the power of giving.

The graduates I was talking to may have gotten a good education, but it didn't include 10 cents worth of information on managing money. They don't know how to balance a checkbook, make and keep a budget, or invest in a stock that Grandpa didn't pick for them. That has to change, and the sooner the better. They won't actually learn those lessons while taking college classes, but if they are lucky they will learn them during their time in college, so that they can be prepared to move on when next they graduate. But regardless of when someone learns money management skills, the important thing is that they figure it out, and the sooner the better.

I've discussed this a few times and several people have commented on it. Our education system does a poor job of teaching kids about how to handle money. That's why we, as parents, need to be sure we do it. The only problem with this is that many parents don't know what they're doing when it comes to handling money. Yikes!!!

Money provides opportunity, but it doesn't guarantee happiness. And until someone can put a price tag on what it takes to be truly content and happy, it will pay to remember that adult life is not all about the pursuit of greenbacks. 

True. That's why I have a whole category here at Free Money Finance devoted to things that are more important than money. A few things on my list: time, health, kids, mind, and happiness.

Simple and Life-Changing Advice for Graduates

Here's a simple, but profound piece from Yahoo featuring some money advice to graduates. The entire piece boils down to this thought from the author:

Try to live within your means, and save money.

She then gives some thoughts on how to do this:

I shared a tiny apartment with a roommate and cut my housing costs in half. I brown-bagged my lunch; walked or took the subway or the bus; ran outside instead of joining a gym; shopped sample sales in the Garment Center; and never took up smoking. I hung out with other people who were both fun and as poor as I was. By my late 20s, my salary had risen, and then I joined a gym, traveled without having to stay in hostels, ate out more often, and continued to save.

She also notes a money saving tip for today's graduates -- but one that has a fast-approaching deadline:

For anyone with student loans, here's a guaranteed way to save: Consolidate your debt immediately to lock in today's lower interest rates. Last week, the Department of Education announced that the rate on existing Stafford Loans will jump to 7.14 percent on July 1 -- a rise of 1.84 percent. The rate on PLUS Loans for parents will also climb 1.84 percent, to 7.94 percent. Someone with $20,500 in student loans would save $3,245 over the course of a 10-year repayment period by consolidating now, according to College Loan Corp., a San Diego lender.

This is simply excellent advice. Of any one principle, spending less than you earn is the key to wealth -- not only for graduates, but for everyone. If you master this concept, you can accumulate a large net worth. If you can't, it doesn't matter how much you make -- $165,000 a year, millions or even billions of dollars -- if you spend more than you make, you're going backwards financially.

To read more about graduate finances, see these posts from Free Money Finance:

• Graduate’s Guide to Finances

• Money-Related Gifts for Graduates

• Five Frugality Tips for College Grads

Should You Go Back to School and Get an MBA?

I've written before about the value of an MBA and even detailed how it's made a tremendous, positive impact in my life. On that post, I received the following comment recently:

Here's my question to anyone listening: Right now I am 24 years old, making $65,000 a year, (as a pharmaceutical rep.) I am contemplating pursuing a full-time MBA at a non-Ivy League university. The total cost of the MBA would be approximately $5,000, (don't ask how I'm doing it so cheap...). I do not have a business background, and would like such an education to help advance my career. But at the salary bracket that I am already in, do you think it is worth it, even in the long run, to pursue an MBA with a non-Ivy league school?

Here was the answer I posted in response:

First, what do you want to do with your life? If you're doing it and getting an MBA won't help you advance, then there's no need.

However, if you do want to do something else (in another field, another specialty, etc.) then it's likely that an MBA will still work out for you. The keys are:

1. Be sure the school you go to has lots of companies in your chosen field recruiting at it. If not, you may end up with a degree and no job at the end of it.

2. Check the starting salaries for these sorts of positions. Many schools (or magazines) publish average starting salaries both before and after grad school -- and most are higher than $65k upon graduation.

3. Once you check these two out and feel comfortable with them, run the math. If you have to quit work to get the degree, you're passing up $130,000 (at least) for the two years you won't have your current job. Plus there's the $5k for schooling as well as other expenses. Calculate how long it will take you to make this amount up (probably 5-10 years). Is it worth it?

4. The intangible question is: what makes you happy? If an MBA gets you a job you love versus the one you may or may not like now, then factor that in as well. Having a job you like is worth a whole lot of money.

Finally, check out Maximize Your Career Earnings: Get a Degree and Manage Your Career. It shows how much more an MBA graduate makes even over a bachelor's degree grad. It's a good amount.

Good luck!

So what do you think of my advice? Good? Bad? Anything to add?

Maximize Your Career Earnings: Get a Degree and Manage Your Career

I've posted several times on the value of education, how it can earn you more and save you money and how education is the key to getting a good job. I've also noted that your career is your most valuable financial asset and managing it correctly can earn you millions of dollars in extra income throughout your lifetime. But I've done this all on separate posts. Today, I'd like to tie them all together and show you the value of an education as well as managing your career -- the impact these have on your career earnings over a lifetime.

There are really two major issues to consider when you try to compare the financial impact of education and career (the lifetime earnings you could make under various options). These are:

1. Your starting salary as you enter the workforce.

2. The rate at which your salary grows through the years.

The first one is impacted primarily by whether or not the person graduated high school and/or college. The second is impacted by the effectiveness of the person in managing his/her career.

I'm going to look at several groups of education levels and several earning scenarios under each group. They are:

Group 1: Those not graduating high school

• A starts work at age 16, works until 65, and averages an "inflation-level" 3% average annual increase in income.

• B starts work at age 16, works until 65, and averages a "decent" 5% average annual increase in income.

• C starts work at age 16, works until 65, and averages a "good" 7.5% average annual increase in income.

• D starts work at age 16, works until 65, and averages an "excellent" 10% average annual increase in income.

Group 2: Those graduating high school but not going to college at all

• E starts work at age 18, works until 65, and averages an inflation-level 3% average annual increase in income.

• F starts work at age 18, works until 65, and averages a decent 5% average annual increase in income.

• G starts work at age 18, works until 65, and averages a good 7.5% average annual increase in income.

• H starts work at age 18, works until 65, and averages an excellent 10% average annual increase in income.

Group 3: Those graduating high school, having some college, but not graduating college

• I starts work at age 20, pays for $5,000 in college costs, works until 65, and averages an inflation-level 3% average annual increase in income.

• J starts work at age 20, pays for $5,000 in college costs, works until 65, and averages a decent 5% average annual increase in income.

• K starts work at age 20, pays for $5,000 in college costs, works until 65, and averages a good 7.5% average annual increase in income.

• L starts work at age 20, pays for $5,000 in college costs, works until 65, and averages an excellent 10% average annual increase in income.

Group 4: Those graduating with a college Bachelor's degree

• M starts work at age 22, pays for $20,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• N starts work at age 22, pays for $20,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• O starts work at age 22, pays for $20,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• P starts work at age 22, pays for $20,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 5: Those graduating with a college Master's degree

• Q starts work at age 24, pays for $40,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• R starts work at age 24, pays for $40,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• S starts work at age 24, pays for $40,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• T starts work at age 24, pays for $40,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 6: Those graduating with a college Doctorate degree

• U starts work at age 26, pays for $60,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• V starts work at age 26, pays for $60,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• W starts work at age 26, pays for $60,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• X starts work at age 26, pays for $60,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 7: Those graduating with a college Professional degree

• Y starts work at age 26, pays for $75,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• Z starts work at age 26, pays for $75,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• AA starts work at age 26, pays for $75,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• BB starts work at age 26, pays for $75,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Based on my post titled Sell College to Your Kids, here are the average starting salaries for each of the groups highlighted above:

• Group 1: Not a high school graduate annual salary: $22,074 
• Group 2: High school graduate annual salary: $27,975
• Group 3: Some college but no degree annual salary: $33,948
• Group 4: Bachelor's degree annual salary:  $51,644 
• Group 5: Master's degree annual salary: $61,296
• Group 6: Ph.D. annual salary:  $80,225
• Group 7: Professional degree (M.D., J.D.) annual salary: $95,175

The rest is just math. Here's what each of them will have earned at age 65, after paying for college costs (if applicable), throughout their careers:

Group 1

• A earns $2.5 million in his career.
• B earns $4.6 million in his career.
• C earns $10.7 million in his career.
• D earns $25.7 million in his career.

Group 2

• E earns $2.9 million in his career.
• F earns $5.3 million in his career.
• G earns $11.6 million in his career.
• H earns $26.9 million in his career.

Group 3

• I earns $3.3 million in his career.
• J earns $5.7 million in his career.
• K earns $12.1 million in his career.
• L earns $26.9 million in his career.

Group 4

• M earns $4.6 million in his career.
• N earns $7.8 million in his career.
• O earns $15.9 million in his career.
• P earns $33.7 million in his career.

Group 5

• Q earns $5.0 million in his career.
• R earns $8.2 million in his career.
• S earns $16.2 million in his career.
• T earns $32.9 million in his career.

Group 6

• U earns $6.0 million in his career.
• V earns $9.6 million in his career.
• W earns $18.2 million in his career.
• X earns $35.4 million in his career.

Group 7

• Y earns $7.1 million in his career.
• Z earns $11.4 million in his career.
• AA earns $21.6 million in his career.
• BB earns $42.0 million in his career.

Very, very, very interesting, I'd say. Here are some of my thoughts:

1. The cost of college is a non-issue in the long run. You earn much, much more through a working career by going to college than the cost of the degree itself. The conclusion is quite simple: for people managing their careers to the same level of effectiveness, the more you go to college, the better off you'll be financially. Consider "A" versus "Y". "A" had 10 more working years and didn't have $75,000 in college debt to be paid off -- and they both managed their careers with the same level of effectiveness. Yet "Y" earned $4.6 million more -- a pretty good return on the college investment. 

2. Managing your career effectively is much more important financially than getting a college degree. Someone without even a high school degree but who does an excellent job managing his career ends up earning $25.7 million while someone who gets a Professional degree and does "only" a good job managing his career (the second-best option) earns $21.6 million. That extra 2.5% every year means a lot due to the power of compounding and the power of time.

3. Numbers (percentage increases) higher than those noted above can be achieved. I'm 18 years into my career, I'm right at a 10% average annual gain, and I'd only consider myself as having done a good (not excellent) job of managing my career.

4. No matter how you look at it, most of these people end up earning a very large sum throughout their careers. If people could just learn to spend less than they earn, more people would become wealthy and would be happier with their finances. 

Another Advantage of Education: It Saves You Money on Your Car Insurance

We've established that having an education is the key to getting a good job and that having a degree can mean $1 million (or more) to you in extra income during your lifetime. In other words, an education can help you earn a boatload more money!!

But it gets even better. Now advanced education can also help you SAVE money as well -- at least on your car insurance. Here are the details from Money Central:

In states where rating factors can legally include education and occupation, insurers such as Allstate and Geico are now charging drivers with the right kind of jobs much less for insurance.

Allstate discounts premiums by up to 10% for those in its favored jobs. Geico simply charges the less educated more.

As you might imagine, there are a lot of people that are upset with these practices, claiming that they are unfair to the uneducated (who are also usually poor). But it gets down to a business decision for the car insurance companies -- if more educated people have fewer accidents, then they should pay less.

But some companies don't see a correlation between education and accident rates. Or maybe it's just too hot of an issue for them. Anyway, here's what other car insurance companies do:

State Farm, the largest car insurer in the country, doesn't use education or occupation to set rates, said spokesman Dick Luedke. The No. 3 insurer, Progressive, also refrains, said spokesman William Perry.

I'm not going to comment on the right-ness or wrong-ness of setting car insurance rates by education. We'll leave that to one of the political blogs. However, I can say that from a financial standpoint, it appears that education can not only help you earn more, but now can also save you money to boot!

Make the Most of a College Education -- It's Well Worth the Investment

I've posted a lot on the benefits of a college degree and how it helps you financially, and here's another piece that reinforces why I do so. This one is from Yahoo and starts with the following information:

According to the numbers, at least, it's still the college degree that's the great dividing line in lifelong economic success. Roughly one-quarter of Americans age 25 and older have attained a bachelor's degree, according to the Census Bureau. Their average earnings were $45,400, compared with $25,900 for a high school graduate. Over an adult's working life, someone with a B.A. earns an average of $2.1 million -- compared with $1.2 million for high school graduates. Those with a master's degree earned about $55,641, or $2.5 million over a lifetime, according to a Census analysis.

Somehow, this topic keeps coming up: going to college helps you earn much, much more during your lifetime. Here are some of the other posts where I've noted this:

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

• Education is the Key to Getting a Good Job

• The Value of an Education

• The Value of an MBA

In addition, I find it interesting that only 25% of Americans age 25 and older have a college degree. I get a lot of "everyone has a college degree so they aren't worth that much" sort of comments -- yet the facts say that 75% don't have degrees. So while college degrees aren't as rare as they used to be, but graduates are still in the minority.

The piece then goes on to detail something I highlighted in Does an Elite College Really Pay? -- the fact that graduates of elite colleges don't earn any more than graduates of "good" schools. Some highlights:

High school graduates who failed to make the cut can console themselves with the knowledge that, at least economically, they will likely do just as well as their Ivy League peers over time. That's according to a 1999 study conducted by Alan Krueger, a Princeton University economist, and Stacy Dale of the Andrew Mellon Foundation.

While previous research had demonstrated an Ivy League salary advantage, the data were problematic because students who attend more selective colleges are likely to have higher earnings regardless of where they go to school.

Krueger and Dale restricted their study to equally talented students who applied to the nation's most elite institutions and started college in 1976. Some were rejected and attended less selective colleges. Two decades later, the graduates were earning roughly the same income.

The article then goes on to highlight several points I have found true in my life. Here's the first:

And, as Kantrowitz adds: "If you get a PhD. from Harvard, nobody cares if you got your undergrad from Podunk U."

This is the case for me. I got my undergraduate degree at a small, liberal arts school in the Midwest that no one's ever heard of. But I got into a nationally-recognized, top 25 business school and got my MBA. That's all employers needed to know, and I had an easy time getting my first job.

The second point the author makes is that by hard work and perseverance, a graduate from a lower-ranked school can have as much success as one from an elite school:

As for undergrads, Kantrowitz says, "You may have an easier time finding a job if you go to Harvard vs. Ohio State -- on the other hand, Ohio State, UCLA, the University of Illinois, UC Berkeley, and several of the other lower-cost institutions are excellent schools."

I got in the door with my state college degree -- I just had to knock a little harder. But maybe learning to knock harder early in life is good training for the hard knocks you can face later.

This was also true for me. I started out with the same job that people from Harvard, Wharton, and the like were getting -- except that I had $5,000 in debt and they had $50,000 or more! The only difference: they made a few thousand more dollars a year than I did. Five years later, we were all at similar pay levels, with better performers earning the most regardless of what school they attended.

Finally, here's the last observation that I've found to be true as well:

As Taylor told me, "it's all about your own motivation. You may get a job because you had a great resume. But if you're not producing, you can't say: 'But I went to so-and-so school.'"

Once you get that first job, your performance is what matters the most. Yes, your education carries some weight, but the farther you get down your career path, the more and more experience matters and the less and less your degree counts. For more thoughts on this topic, see this post: Experience versus Education: Which Counts More in Career Success?

For those of you focused on saving for college -- any college -- here are some posts from Free Money Finance that could help you:

• 4 Ways to Save Big on College Costs

• A Great College Money Saving Tip

• Big Money Blunders to Avoid: Saving for College

• Four Basic Ways to Save for College, Part 1

Why Education is So Important to Your Financial Future -- And How You Can Pay for College

Your career is your most valuable financial asset and managing it correctly can earn you millions of dollars in extra income throughout your lifetime.  A key part of making the most of your career is getting a good education. There's no doubt that education is the key to getting a good job and there's tremendous value in education. It simply gives you a huge advantage versus others without it. Then, when you capitalize on your education by actively managing your career, you're on your way to financial freedom.

This article from David Bach talks about why education is so important to your financial future. A few of his thoughts:

Investing wisely in higher education is one of the best financial decisions you can make. More education means higher earnings -- for life. In 2001, according to student lender Sallie Mae, the median earnings of a high school graduate were about $29,000 annually. For those with a bachelor's degree, the number was more than $46,000. Holders of professional degrees, such as law and medicine, racked up median annual earnings of more than $82,000.

Unemployment numbers also drop dramatically as education level increases: College graduates were nearly half as likely to be unemployed as high school graduates, and professional degree holders were nearly a quarter as likely.

Yet even knowing that an education will reap tremendous financial rewards, there still is a pretty big financial burden on families and students to pay for college. Bach gives the following tips to help cushion the financial requirements of funding an education:

• Control Your Expenses. Some students these days use student money to finance their lifestyle, spending the money on meals out, vacations, or other expensive luxuries. Don't do that. Use popular money management programs such as Intuit's Quicken or Microsoft Money to draw up a budget.
• Get the Best Loan Terms, Rates, and Benefits. Federal loans are generally the best deal.
• Repay on Time. The good credit you build will be invaluable to you when it comes time to apply for a mortgage or other loan.
• Pay the Loan Automatically. Being late on your student loans can ruin your credit. So set up "automatic payment" plans.
• Start Saving, Too. I'm often asked if a person should pay their student loans off first before they save for a home or use their retirement account at work. My answer is that if your interest rate is low, and most student loans are, pay the minimum due and focus the rest of your money on getting out of high-rate credit-card debt and towards saving for the future.

Good stuff, as usual, from Bach.

Below I'm listing some links that supplement what Bach is saying for those of you who want some additional information.

Budgeting Guidance

• Why We Hate Budgeting - But Shouldn't
• A Great Alternative to Quicken and Microsoft Money, Part 2
• Five Keys to Developing a Successful Budget

Paying/Saving for College

• 4 Ways to Save Big on College Costs
• A Great College Money Saving Tip
• Big Money Blunders to Avoid: Saving for College
• Four Basic Ways to Save for College, Part 1

Repaying Loans/Getting Out of Debt

• Nine Ways to Pay Off Debt
• Get Out of Debt, Part 1
• Nine Steps to a Great Credit Score -- Save Yourself Thousands of Dollars

Saving

• Where to Put $5,000?
• Have a Hard Time Saving? You Can Amass a Fortune by "Tricking" Yourself
• Get an Emergency Fund Now!

Making the Most of Your Career

• Nine Steps to a Perfect Career Fit
• Comments: Experience versus Education
• Review: Career Intensity by David Lorenzo
• Seven Ways to Start Your New Job Right

The Richest Man in Babylon: Seven Cures for a Lean Purse Part 7, Increase Thy Ability to Earn

In the third chapter of The Richest Man in Babylon the book lists and details "seven cures for a lean purse." Today, we'll cover cure #7 which is:

Increase thy ability to earn.

Here's what the book has to say on this last cure:

As a man perfecteth himself in his calling even so doth his ability to earn increase.

Yes, it said "perfecteth" and "doth." ;-)

The book continues a bit later on:

The more wisdom we know, the more we may earn. That man who seeks to learn more of his craft shall be richly rewarded.

The cure ends with this:

Thus the seventh and last remedy for a lean purse is to cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself.

Here at Free Money Finance, we've already established that your career is your #1 financial asset -- and managing it appropriately can make you millions throughout your working years. The best way to jumpstart your career is to get a good (or additional) education. There is a big, big difference in starting salaries and earning power over a lifetime with a college degree versus not having one. And for those wanting to earn even more, getting an MBA is an option. Couple this with spending less than you earn and it's impossible not to become wealthy.

For those of you who are saving for college to give your kids a leg up in earning power, here are some posts from Free Money Finance that can help you  pay for it:

• 4 Ways to Save Big on College Costs


• A Great College Money Saving Tip


• Big Money Blunders to Avoid: Saving for College


• Four Basic Ways to Save for College, Part 1

Does an Elite College Really Pay?

I think it's clear that a college education is well worth the time and money spent on it. If you disagree, check out these posts:

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)


• Education is the Key to Getting a Good Job


• The Value of an Education


• The Value of an MBA

But here's a more difficult question: is an elite college (Harvard, Yale and the like) a better investment than any other college? Here's what MSN Money says:

The economist Alan B. Krueger teaches at Princeton University, but in his view, it's probably not worth the money it takes to send your kid there.

Not in terms of future earnings, anyway. Krueger ignited a minor furor when he and Stacy B. Dale, a researcher at the Andrew W. Mellon Foundation, concluded in 1998 that elite colleges do not pay off in higher earnings. They only appear to do so, the researchers contended. Krueger and Dale claimed that, in most cases, the higher earnings piled up by graduates of elite schools were attributable to elite individuals, not their college education. In other words, if you're smart enough to get into Princeton, you're smart enough to make a lot of money wherever you go to school.

Whether or not Krueger and Dale's research holds up--and the jury is still out--tuition-paying parents will want to follow the debate closely.

The article then goes on and on debating the subject. However, it does end with some suggestions on what we should all do as we ponder this question for ourselves and our children:

If your kid intends to become a social worker or minister, an Ivy League education will never pay off in financial terms. And if your child wants to study studio art but is admitted to Cal Tech, there's no point paying for Cal Tech. Spend the money on a school with a better art program.

If you live in a state with a premier public institution--a school such as UC Berkeley, the University of Virginia, or the University of Wisconsin--it's hard to justify going elsewhere, unless elsewhere is one of the very best private schools. Even then, in the view of Dan Black, you should pick your state school.

Under no circumstances should you pay for a mediocre private school. These make no sense at all.

If you are made of money, send your kid to the most selective school you possibly can. It can't hurt.

If you are African American and your kid gets into Yale, do whatever you can to send him or her. Krueger and Dale found that black students get a bigger financial bang from a top-tier school. There is also some evidence that the same applies to students from economically disadvantaged backgrounds generally.

This decision is still a long way off for me and my family, so it's not pressing for us. However, this information will be food for thought for several years down the road.

For those of you focused on saving for college -- any college -- here are some posts from Free Money Finance that could help you:

• 4 Ways to Save Big on College Costs


• A Great College Money Saving Tip


• Big Money Blunders to Avoid: Saving for College


• Four Basic Ways to Save for College, Part 1

College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

Here's a piece from Money Central lamenting the fact that college is so expensive. The piece notes that there are five main reasons college costs so much:

• Capital spending: Cornell economist Ronald G. Ehrenberg, in his book “Tuition Rising,” describes a kind of “arms race” among the nation’s top schools to have the best of everything: the best facilities, the best faculty and strong sports teams to engender loyalty among alumni donors.
• Faculty: Half to two-thirds of the typical college’s budget goes to paying instructional salaries. So rising paychecks are indeed a factor in higher college costs. The tenure system and the lack of mandatory retirement can make it tough to oust high-earning but less productive employees.
• Productivity: One factor that keeps inflation muted in the private sector is worker productivity. Technology, equipment and experience tend to help the average worker make widgets faster over time. That growing productivity allows a business to create more products for the same cost. But colleges aren’t in the business of making widgets. Those that try to force greater “productivity” out of their professors -- by increasing class sizes or class loads -- often find their strategies backfire. The best instructors leave for better environments, and the colleges’ reputations suffer among students and the ranking services that gauge university quality.
• Financial aid: As we’ve seen with the health-care system, if people aren’t feeling the real cost of their purchases, they have less incentive to change their behavior. If you’re paying the full tab and Elite University jacks up its rates 10%, you might opt for Just Fine State. If enough others followed your lead, Elite might rethink its pricing. As it stands, however, Elite just needs to boost your financial aid package by 8% or so, and you’ll grumble but stay put.
• Bigger pool of qualified applicants: This is the big kahuna and perhaps the strongest force affecting college prices: demographics. The number of college-age people is expected to grow from 17.5 million in 1997 to 21.2 million by 2010. The percentage actually attending college is bound to increase further, as fewer and fewer decent jobs remain for those with just a high school education. Meanwhile, the most selective schools haven’t expanded that much, even as the number of qualified applicants keeps rising. That’s why the SAT scores that would have gotten you into Harvard a decade ago might not get you accepted at your “safety” school today. With that kind of demand, college and universities can continue to boost prices almost at will.

Let me be sympathetic for just a few seconds. Yes, higher education is expensive. Yes, it's getting more expensive every day. Yes, the combination of paying for college while also trying to save for retirement is a tough financial challenge. I certainly can understand people's pain.

Ok, now back to reality.

Come on people, it's not like this expense is sneaking up on you. When you have a child, you know that in 18 years there's a good chance that you're going to have a major expense for four years. So, what do most people do about it? Nothing. (other than keep spending their money like crazy.) They don't even start thinking about it until their kids are in junior high (if that). Then they are appalled at the cost of college and complain that they can't possibly pay for it. Sheesh!

You think I'm making all of this up? Money magazine quotes Vanguard and Upromise in its May issue when stating:

The amount the average family with a teen has saved for college: $6,625.

This is for families with a TEEN -- translation: at least one child will be starting college in a maximum of five years!!! And this is all they have saved -- less than one semester's tuition at many colleges. I have more than twice this saved for each of my kids -- and they are both under 10!

Alright, enough said on the "why aren't you saving for college?" issue. The fact is, even at these high and increasing costs, a college education is still a great financial deal:

Despite two decades of rising prices, 68% of full-time undergraduates attending four-year colleges still pay less than $8,000 in annual tuition and fees. The payoff: post-college incomes that are 60% higher than those of high school graduates and that, on average, mean $1 million more in lifetime income.

Yes, there is a big, big difference in starting salaries and earning power over a lifetime with a college degree versus not having one. Want to earn even more? Get an MBA, then manage your career to maximize your net worth. Couple these with spending less than you earn and it's nearly impossible not to become wealthy.

So how should you save for college? Here are some tips from Money Central:

• Save early and often.
• Learn how to maximize your chances for financial aid.
• If you don’t expect to get financial aid, prepaid tuition plans might be worth investigating.

Then, here are some suggestions from Money:

• Tighten your belt. Every dollar that can be squeezed out of the family budget is worth two in loans and interest.
• Spend 529 money first. Spending it may qualify you for financial aid in later years.
• Share the cost. Overwhelming a kid with student loans isn't a good idea, but letting him take on some debt for his education is appropriate.

Finally, here are some posts from Free Money Finance that can help you out as well:

• 4 Ways to Save Big on College Costs
• A Great College Money Saving Tip
• Big Money Blunders to Avoid: Saving for College
• Four Basic Ways to Save for College, Part 1

How to Become a Millionaire (How to Become Rich)

If you'd like to learn more about how to grow your net worth, you can subscribe to Free Money Finance's RSS feed for free by clicking this link.

Yeah, yeah, a million dollars ain't what it used to be. But it's more than 90%+ of all U.S. households have. So who wouldn't want to be a millionaire?

This article from Money Central is written by a millionaire and in it she shares her tips on how to become a millionaire. The key tips:

• Make financial security a priority.
• Spend less than you earn.
• Save and invest regularly.
• Pay down debt.
• Own a home.

Good, simple, basic, effective tips. I'll come back to these in a minute, but let's first review a few other tidbits from the piece:

• If you haven't got a plan, it's way too easy to lose your way: spending money on stuff that isn't important, taking on debt that's toxic rather than helpful, giving in to despair when markets turn against you. Having a long-term goal, and a long-term view, are essential to keeping your balance.
• I bless my Depression-era mother, who grew up poor, knew how to pinch a penny and put a high priority on savings. She understood the importance of "paying yourself first," so from my first job I've been in the habit of saving at least 10%, and often 20%, of my gross pay. She taught me to use credit cards as a convenience, not an excuse to buy stuff I couldn't afford. She viewed people who carried credit card balances with the same suspicion and displeasure with which she regarded people who didn't keep a tidy house.
• Again, automated investing plans really help. We invest regardless of whether the market is up, down or sideways. We know that, in the long run, a well-diversified portfolio of stocks beats out every other investment, even if there are some bumpy times along the way.
• Another key: Don't cash out your 401(k) when you leave a job. About half of all workers do, and that's nuts. It's not just the taxes and penalties that eat up a quarter to a half of your withdrawal. More importantly, every $1,000 cash-out costs you $10,000 or more in future retirement income. So roll the money over into an IRA or your next employer's plan.
• But it does mean you should avoid high-rate debt and be cautious about your total debt load. Keeping your housing expenses to 25% of your gross pay, for example, will help ensure you've got enough left over to fund your other goals and have some fun once in awhile.
• Despite the ups and downs, owning a home has long been the cornerstone for wealth for most people. Consider that the median net worth of all homeowners in America in 2004 was $184,400. For renters, it was $4,000. Among the richest 10% of households, 96.9% are homeowners, compared with 69.1% of all households.
• We’ve discovered (duh) that it's easier to meet your goals, and have money for fun, if your income is rising. So we've invested in education, launched our own businesses and looked for new ways to generate cash. In today's ever-changing economy, you have to be ready to learn new skills and take new directions.
• Finally, and maybe most importantly: My husband and I don't live just for tomorrow. Our long-term goals are important to us, but we also want to enjoy life today. The fattest bank account in the world wouldn't be worthwhile to us if we didn't have a chance to enjoy each other, our daughter and our lives. So we appreciate the financial mileposts when we achieve them, but we know there's more -- a lot more --to life than money.

Just an excellent, excellent, excellent article all the way around. All this, and she also recommends two of my all-time favorite finance books -- The Millionaire Next Door and The Automatic Millionaire. What's not to love??!!

If you've been reading Free Money Finance for more than two seconds, you know how I talk about these issues on a regular basis. Here are some links that provide additional thoughts on what the article has highlighted:

Have a Financial Plan

• Pretend It's Not a Budget: How to Create a 'Spending Plan' You Can Stick To
• MND: Why do Millionaires have Budgets?
• MND: Have a Budget

Spend Less than You Earn

• How You Can Become Wealthy
• Even the Rich Need to Spend Less than They Earn
• It's Not What You Make, It's What You Spend, Part 3

Save and Invest Regularly

• Why I Like Index Funds
• Poverty to Prosperity
• The 15 Minute Investment Portfolio

Pay Down Debt

• 7 Credit Card Trends that Can Cost You
• Yes, You Can Erase 15 Years of Debt in 14 Months
• Get Out of Debt, Part 1

Own a Home

• My Formula for Buying a House
• Why Homeowners Get Rich and Renters Stay Poor
• Increase Your Home's Value with Cheap Landscaping Tricks

Importance of Education

• Sell College to Your Kids
• The Value of an Education
• Facts on Education (and the Value of It)

Other Topics Mentioned

• The Richest Man in Babylon, Keep Part of All You Earn
• Don't Kill Your Retirement Fund When You Change Jobs
• Maximizing Your Greatest Asset: Why Your Career is So Important

Preparing for the Highest-Paying Careers

If you'd like to learn more about how to grow your net worth, you can subscribe to Free Money Finance's RSS feed for free by clicking this link.

If you haven't started your career yet (or are thinking about a change) and want to make some good money, this article from Encarta is for you. It lists the highest-paying careers and starts with the following introduction:

When it comes to the careers with the highest salaries, one very clear fact emerges: We Americans value our health, our computers, and our money. The professionals who safeguard them are earning the heftiest salaries.

The piece then goes on to tell about the great-paying careers available in healthcare, computer science, and law. Here's a summary of each section:

• The 77 million baby boomers in this country are aging, which is why eight of the ten fastest-growing careers and nine of the ten highest-paid ones are related to health care. Topping all scales are surgeons and anesthesiologists, who both may earn upward of $190,000 or more, according to the Bureau of Labor Statistics (BLS).
• Many top tech professionals would consider a 40-hour week a vacation, and they're the ones called at midnight on New Year's Eve to come to work and fix stuff. These managers earn this responsibility with a bachelor's degree and an MBA or other graduate degree with a core technology component. They usually earn management status through years of on-the-job training as a programmer or systems analyst. But the benefits include comfortable working conditions and a salary that averages around $85,000 per year.
• It's a sad but true aspect of American society: We'll sue you faster than you can say "dollar signs." Lawyers are popping up on every corner, and the trend shows no signs of slowing. That's because they make really great money earning their clients really great money. The BLS says the average attorney in private practice makes about $90,000 a year. Lawyers are both advocates and advisers in our society and, as such, don't always work in the courtroom (although Hollywood would have you believe otherwise). Many lawyers specialize in matters of international, intellectual property, tax, or other law, and spend 99 percent of their time outside the courtroom, in libraries or business offices.

And if you like the idea of high pay/low hours, here's an idea for you:

Dentists have the distinction of being the only health care professionals on that list who work, on average, fewer than 40 hours per week. Yet they continue earning between $85,000 and $120,000 per year, according to the BLS. The other bonus? A whole lot less time in school. Most dentists complete a bachelor's degree, four years in dental school, and a licensing exam.

Lots to say on this one:

1. A friendly reminder that your career is your most valuable financial asset and you need to manage it accordingly.

2. Once again, we see that education is the key to getting a good job. Notice how all of these jobs need a good amount of post-high school learning?

3. I have another idea to add to this list -- go into business and get your MBA. You can make as much (or more) as any of these jobs.

4. Don't forget being a pharmacist as a great-paying job option.

5. Also, don't forget the list of hot jobs for 2006 and beyond and the list of jobs that pay well because no one wants to do them.

6. Here are some more career-related posts for those of you looking to maximize your greatest financial asset:

• Seven Ways to Start Your New Job Right
• Review: Career Intensity by David Lorenzo
• New MBAs Finding Education Pays Off Big Time
• Want More Pay? Here are Some Tips

Comments: Experience versus Education

Lots of good/interesting comments to my piece on Experience versus Education where I asked what makes more difference in your career -- having great experience or having a good education. Clearly, there's not a "perfect" answer (that's the life when you talk about personal finance) but there are certainly a lot of opinions on the issue.

We'll start with this comment:

I have to take a bit of exception with this article, as it is not really comparing apples to apples. Candidate "A" and "B" above would probably not be competing for the same job.

A more fair comparison would be if both candidates were at the same point in their careers (had risen to president) and were both looking for a different job. All else being equal, you would probably pick the candidate with a degree.

The education is just one more advantage in a competitive job market. I agree that education does not matter in your CURRENT job, but it very well may matter when you are looking for your NEXT job.

I didn't think this was a fair comment and responded as follows:

But in reality, all else is NEVER equal (at least that's what I've experienced in almost 20 years in business). If two people are applying for the same job, they always have different skills, abilities, experiences, personalities, and on and on.

I'm not saying education is not important -- far from it, just check out all the pro-education pieces I've written in my "education" category. What I am saying is that as a person gets into his/her career, a degree means less and less as time goes on. Business experience and performance means more and more until the degree is really marginalized.

Where the degree does help is at getting your foot in the door initially -- to help you get good experience at good companies.

Next, another commented chimed in with these thoughts:

I work as a software developer, making bleeding edge network security products. I got my bachelor's degree in computer and electrical engineering and  my master's degree in electrical engineering. All the degrees came from a top 10 program nationally. That educational background has opened a lot of doors for me and I have a very nice career going. When I'm interviewing, candidates with advanced degrees from top programs get a little bit of extra credit.

But the sheepskin isn't everything.

My company does technical interviews, in which we give candidates technical problems to solve, so that they can demonstrate that they can really handle the kind of high level work that we do. Plenty of people with top-notch educational backgrounds fail at this.

Similarly, my last two managers have been college dropouts. As it happens, they're two of the most technically excellent engineers I've known in more than a decade in the business. Even if their educational backgrounds aren't as impressive on paper as mine. If I were a hiring manager and either one of these men came to me looking for work, I would hire them on the spot.

Here's one tip, though. Education is important. Your resume is important. But as you move further and further in your career, both pale in importance next to your network. That's what's really key.

I agree with this commenter mostly. His example (experience trumps education as you get into your career) is one that I agree with. However, he somehow concludes that your "network" is more important.

Our next commenter added the following:

I'm a manager that has done some recruiting to hire employees. The reality is that when you are hiring, you have to sift through a stack of resumes. Typically you get over 100 resumes. You MUST narrow the field down to a reasonable number to interview; about 10 is the most I can interview; typically about 3-4. How do you narrow down the field from 100 to 3-4? It's unfair, but the biggest criteria for narrowing the field is education, and of course, 
obviously relevant job experience. If you graduated from MIT and you have experience doing exactly what we're looking for, you're going to get interviewed. If you don't have masters degree (or even college education), then you better have a very specific experience that we want to hire (i.e., you are currently working with the client, doing the exact thing we're hiring for). Otherwise, you won't get interviewed. Its sad, its unfair, its stupid. But its 
practical and easy.

So he says that both education and experience are used to hire people. I agree with this, though my experience is that the higher level person you're looking for, the more emphasis on experience and the less emphasis on education. I've hired people for Director-level positions making over $100,000 a year, and believe me, experience was MUCH more important than education in these cases.

Here's another person's reaction to this comment:

If you're in the position of the candidates MikeK is referring to (your resume and letter land on the desk of the hiring manager or -- far, far worse -- the HR department, along with 99 or 999 others that look more or less just like them) then education matters. Or at least, it matters in the sense that the lack of it will kill you in the first culling, as opposed to the second or third, which is where you'll probably end up getting killed if you've got the degree.

Candidates with track records and networks don't get jobs by sending a looks-like-all-the-others resume to a hiring manager, and HR doesn't often learn about them until they've gotten offers. Which is why education doesn't matter anywhere remotely close to as much for us.

Yep.

And here's one final perspective on the issue:

Like the woman in the article, both my father and the head of our corporate compliance department do not have college degrees. They all worked their way up and received on the job training. But I also think they're a dying breed. I can't think of even one person younger than 35 in my department who doesn't have at least an associate's degree. Outside of the corporate context, it's a whole different scenario. On the one hand, as documented in the 
Millionaire Next Door, you could be a small business owner and do quite well for yourself with or without a degree. But on the hand, if you want to be an attorney, physician, nurse, pharmacist, etc. you can't just apprentice yourself to someone anymore. You absolutely have to have that degree under your belt. It really just comes down to what you want to do in life. A degree just gives you more options.

Here's my experience and bottom line on the issue:

1. Overall, education versus non-education is a financial no-brainer. Statistics show that you'll make tons more money in your lifetime by getting an education.

2. For entry level positions, education is vital. Why? Because you don't have any experience and the hiring manager has to base his/her decision on something. As such, as one of the commenters said above, a college education is becoming a minimum requirement to get your career off the ground.

3. As you progress in your career, education means less and less with every passing year. This is because companies hire people that perform. They don't care (for the most part) what the educational background is as long as the person can deliver results (which usually means making money for the company).

4. So my advice is to get your degree, get your foot in the door, then manage your career so that you maximize your experience (and thus your earning power).

Experience versus Education: Which Counts More in Career Success?

Here's a piece from MSN that gets to the heart of an age-old business question: do you have to have a college degree to be successful in your career? The article starts with an interesting question -- interesting in that it comes from someone who's already "successful" but is worried about her lack of education. Here goes:

Question: I started with my company fresh out of high school 15 years ago and rose to president. I know my experience and work ethic are assets, but my lack of a college degree is a big hole on my resume. What advice do you have?

Here's my advice: You're the PRESIDENT of the company. You're doing WELL. Keep doing what you've been doing!!!!!

Ok, enough for subtlety. Here's what MSN answered:

I suspect this is a bigger hole in your psyche than it is on your resume. You have already achieved a level that many college graduates will never reach. A lot of people who have had extraordinary careers never finished college, while many highly educated people can't hold down a job.

Yep, I'm in agreement with this 100%. But the main issue is which is more important in career advancement and hiring -- education or experience. MSN addresses that next:

Put yourself in the shoes of a hiring manager considering two choices for a leadership role: Candidate A has a degree from a prestigious school but has never turned around a profit center, while candidate B launched a new division and made it an $80 million-a-year moneymaker. I don't know about you, but I'd choose B. "If the person does indeed have a track record of success, a degree is a nonissue," says Gary Roberts, a partner with Cabot Consultants Inc., a Tyson’s Corner, Va., recruiting firm that often works for venture firms backing early-stage companies.

Generally, I advise people to get an education. There are just so many advantages to having one -- including the big, positive impact it will have (on average) on your income (and ultimately your net worth) -- especially when you're starting your career. See these posts for more information:

• The Value of an MBA
• The Value of an Education
• Facts on Education (and the Value of It)
• Sell College to Your Kids

That said, if you've already achieved a good level of success and don't have a degree, I don't think you need to get one. If you wanted to, you could get an online degree from a well-known school (and if you're a "star" your company will probably pay for it), but as the guy said above, "If the person does indeed have a track record of success, a degree is a nonissue."

FMF recommends Emigrant Direct.

Education is the Key to Getting a Good Job

Here's some information from Parade's "What People Earn" feature on the best jobs over the next several years:

The biggest growth will be in financial services, technology, health care and energy, John Challenger says. He predicts high demand for accountants, petroleum engineers, physical therapists, pharmacists, computer specialists, and international sales and marketing managers. Every problem creates new job opportunities: Fear of identity theft has opened up jobs in data security. And heightened national security creates jobs in defense-related fields, from aerospace to software development, as well as in law enforcement. Many police departments are offering higher pay, housing allowances and, in some cases, signing bonuses for bilingual skills.

An education is often the key to making a good income. Parade's findings:

Education is vital to getting a good job. On average, full-time workers with a high school diploma earn $585 a week; those with a college degree earn $1,029. Men with advanced degrees make $2,887 or more; women make $1,997 or more.

Yep, we've covered this territory before -- but it can't be emphasized enough. On average, a college education will make a significant, positive impact on a person's earning ability. Here are some past posts from Free Money Finance that shed some additional light on this issue:

• Sell College to Your Kids
• The Value of an MBA
• The Value of an Education
• Facts on Education (and the Value of It)

FMF recommends Emigrant Direct.

The Hot Major for Undergrads Seeking High Pay Is Economics (Or is it?)

Who would have believed that economics is the hot college major this year? Well, that's what this piece from MSN says. However, I'm not buying it. Let's start with their facts:

Colleges and universities in the United States awarded 16,141 degrees to economics majors in the 2003-2004 academic year, up nearly 40 percent from five years earlier.

The number of college students majoring in economics has been rising since the mid-1990s, according to the government's National Center for Education Statistics. Meanwhile, the number majoring in political science and government has declined and the number majoring in history and sociology has barely grown.

The number of students majoring in economics has been rising even faster at top colleges.

Ok, so more people are getting degrees in economics. But that doesn't make the major "hot" to me. What would make it hot is if economics majors were seeing starting salaries grow at rates much faster than other degrees. The piece attempts to imply that salaries are growing as well, but it appears that the facts just aren't there yet (why else would they use the data they use and try to make it stretch to make a point?).

Now don't get me wrong -- I'm a big fan of getting a college education and believe there's great value in a degree. However, I think this piece is a bit misleading. Economics may be growing as a major, but the way I look at it, it's not "hot" yet.

If you're thinking about college and how to pay/save for it, see these links:

• Repaying Your Student Loans
• A Great College Money Saving Tip
• Sell College to Your Kids
• 4 Ways to Save Big on College Costs

Sell College to Your Kids

Want your kids to go to college but they don't want to? MSNBC has some suggestions on how you can "sell" them on going to college. Here's my favorite:

Another compelling tidbit is financial. Point out how much difference a college education will make to their earning power for the rest of their lives. Explain how most good jobs today require at least a college education. Share this eye-opening table with your children early, and you may find that they're suddenly considering law school!

• Not a high school graduate annual salary: $22,074 
• High school graduate annual salary: $27,975
• Some college but no degree annual salary: $33,948
• Bachelor's degree annual salary:  $51,644 
• Master's degree annual salary: $61,296
• Ph.D. annual salary:  $80,225
• Professional degree (M.D., J.D.) annual salary: $95,175

(Median earnings, source: U.S. Bureau of the Census, 2000)

There's a BIG difference between just graduating high school and getting a bachelor's degree -- wow! If this doesn't convince them, then nothing will. But you may want to try mentioning the frat parties, lively co-eds, blowing off class and sleeping until 1 pm, and the like. Ok, maybe not. ;-)

An education is probably one of the best, if not the best, investment you can make. For more information on how beneficial it can be, see these posts:

• The Value of an MBA
• College Majors that Boost Your Paycheck
• The Value of an Education
• Facts on Education (and the Value of It)
• The Value of Education
• Almost Infinite Investment Return
• Comments: Almost Infinite Investment Return; Life-Long Learning

Comments: The Value of an MBA; It Will Pay Out Easily

Here's a comment I received on my post titled The Value of an MBA:

I completed my MBA almost two years ago. While I'm not sure I've seen the investment make sense in monetary terms (I haven't switched jobs), I have definitely seen a rapid increase in my position and responsibility. Hopefully, the paycheck catches up soon. Already, I can see it was worth it in the long run. Especially since my company paid the $60k+ tuition for me.

As I said in the original post, getting an MBA was probably one of the best financial decisions I ever made. It's increased my income significantly versus what I was looking at with a BS only. And while this commenter hasn't yet cashed in on his MBA, I think it's probably just a matter of time. Besides, his employer paid for his degree -- so he's only out some time and hard work. It's almost a sure thing that his MBA will be a big boost to his net worth in the long run.

Tax Credits for Education

Here's some advice from the National Tax Advice Day Web site on education credits you can apply on to your income tax:

The Hope credit and lifetime learning credit are two tax credits available to help pay for college for you, your spouse, or your dependent. A tax credit provides a dollar-for-dollar reduction in the amount of federal income taxes that you owe.

For example, if you owe $2,000 in income taxes and have a $1,000 tax credit, you cut your tax bill in half. In general, you cannot receive a refund for the portion of a tax credit that exceeds the amount of federal income taxes that you paid.

The Hope credit can be used for expenses incurred in the first two years of college, up to $1,500 per qualified student, per year.

The lifetime learning credit applies to tuition costs for undergraduates, graduates, and those improving job skills through a training program. This credit can be used for 20% of up to $10,000 in qualified expenses per year (no matter how many qualifying students you claim).

You can receive tax-free distributions from education savings accounts (ESAs) or QTPs without affecting your use of the Hope or lifetime learning credit. The only stipulation is that you don't claim the credit for expenses that you pay with these tax-advantaged accounts. (Distributions from an ESA or QTP are excluded from income when calculating the credit.) You must complete IRS Form 8863: "Education Credits" if you use either credit.

To help you calculate your credit, the IRS requires the school that you attend to mail a Form 1098T: "Tuition Payments Statement" by Feb. 1.

Use of the Hope credit and lifetime learning credit phases out at higher incomes. For taxpayers filing a single return, the tax credits begin to phase out when modified adjusted gross income (MAGI) reaches $43,000. For couples filing a joint return, the credits begin to phase out when income reaches $87,000. These credits phase out completely when income reaches $53,000 for single persons, and $107,000 for married persons filing a joint return.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.

FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

New MBAs Finding Education Pays Off Big Time

I've written a lot about education, the value of it, how it's one of the best investments you can make to grow your net worth, and the like. Here is a sampling of what I've had to say:

• The Value of an MBA
• College Majors that Boost Your Paycheck
• The Value of an Education
• Facts on Education (and the Value of It)
• The Value of Education
• Almost Infinite Investment Return
• Comments: Almost Infinite Investment Return; Life-Long Learning

Given my history, I had to share this piece from USA Today about how MBAs are seeing a great financial return associated with their degrees. The key parts of the article are as follows:

Salaries and signing bonuses of fresh graduates took a double-digit jump in 2005 to a record average $106,000.

The $106,000 salary and signing bonus was up 13.5% from 2004, according to a GMAC survey of 5,829 2005 grads. Salary alone increased to $88,600, surpassing the previous high of $85,400 set in 2001. The 2005 salary still trails 2001 by about $4,000 when adjusted for inflation, but the inflation-adjusted record will likely be broken this year.

The trend is global, according to a survey out Tuesday by QS World MBA Tour. Average salary and bonus for new MBAs was up 10% in 2005 to $114,000, also breaking the record set in 2001.

As I said in The Value of an MBA, my degree has been an outstanding investment for me over the years. The two years of time and money (a small amount in my case) was well worth it.

The 10 Best Values in Public Colleges

I've written before about the value of an education and how going to college is one of the best moves you can make to grow your net worth. If you look at this as a financial investment, there's no doubt that you'll end up making much more than you spend if you go to college. However, there is a cost value relationship that you need to consider: if you can pay less to go to a college and still make as much as if you went to a more expensive school, then your return on investment is even better.

Here's Money Central's list of the top 10 values in education:

1. The University of North Carolina at Chapel Hill
2. University of Florida
3. University of Virginia
4. The College of William and Mary
5. New College of Florida
6. University of Georgia
7. State University of New York College at Geneseo
8. University of Illinois at Urbana–Champaign
9. State University of New York at Binghamton
10. University of Washington

My school placed in the top 40, so that's not bad. And it was certainly worth the investment I made. If you want details on what going to college (namely grad school) did for me, check out The Value of an MBA.

Free Money Finance recommends Emigrant Direct.

An Early Start on the Road to Riches

Here's a great post from one of my favorite personal finance authors. It's from David Bach, who wrote The Automatic Millionaire, and talks about some wisdom his grandmother imparted to him when he was young. That wisdom got him started on the road to wealth and I wanted to share the key points of the piece with you:

But more important than how well my first stock pick did is the lesson my grandmother taught me. Opportunity is always around us. You can spend, work, or own. Owners get rich.

Grandma started teaching me about investing when I was seven. Kids are even smarter today. You can start them even younger. How can you tell if a child is ready to learn about money? Put a $10 bill in one hand and a $1 bill in the other. Then ask them which one they want. If they are smart enough to choose the $10 bill, they're ready to be taught.

Teach them what you've learned about money from your own personal experience, the bad as well as the good. If you had a bad experience with credit-card debt, share that with your kids. If your home has been a great investment, share how and why that is. Above all, teach a child you love how to see, hear, and notice opportunity.

Financial education is the gift that keeps on giving. The mistake in our school systems is that we don't make teaching about money mandatory. For our kids' sake, it should be. Until it is, do it yourself.

Well said, David! I've written before that any learning, even reading a book, represents a tremendous investment that will grow your net worth. If you want to know more about how education is a very profitable investment for you, see these links:

• The Value of an MBA
• College Majors that Boost Your Paycheck
• The Value of an Education
• Facts on Education (and the Value of It)
• The Value of Education
• Almost Infinite Investment Return
• Comments: Almost Infinite Investment Return; Life-Long Learning

Free Money for Grad School

This article from Kiplinger talks about how you can pay for graduate school by getting awards, grants, or assistantships. The heart of the piece is when it tells how you can increase the odds of getting more than your fair share of the money available. Here are their four tips:

• Start early.
• Network.
• Spiff up your résumé.
• Consider a PhD.

Good overall advice.

I had an assistantship the two years I went to grad school. I had to work every Friday and Saturday night managing the school's theater, but I left with only $5,000 in debt while my friends at Duke, Wharton, etc. had $50,000 to $75,000 in debt. We all started with the similar jobs after leaving school. ;-)

Educate Yourself into Riches

Here's an article that's about 95% junk, but it does have one good thought that I wanted to share and comment on. The article is titled educate yourself into riches and contains the following piece of good advice:

In my opinion, that means each of us needs to be responsible for our own financial education so we can tell the difference between good advice, biased advice, and crooked advice. If you can educate yourself to know the differences between those three types of advice, getting rich is easy.

Yes, responsibility for your money belongs to no one other than you. Take it seriously, study, apply what you've learned and you'll do well. Slack off, leave it to someone else, or don't put learning into practice, and you're destined for disaster.

Where do you get good financial advice? I've gotten a lot of mine from books. Invest in a few good financial books this year and you'll earn an almost infinite investment return.