by Damon Carr, For New Pittsburgh Courier

Is a postgraduate degree worth it? Would you advise someone to invest in an MBA where the costs can top $100,000?

~ Steve

Damon says:

You can never frown on the idea of higher education. The more you know, the more you grow as a person. More education should make you more marketable. Being more marketable increases both your job opportunities and your earning potential. More education, more skill, more know-how is always good. It’s the $100,000 price tag you referenced that gives me pause. Does it make you nauseous at the idea of spending up to $100,000 for a graduate degree? It should! That’s a lot of money!

Like all things in life, affordability has to be at the top of the discussion. I’d first recommend the person in pursuit of an MBA to look for cheaper options. I’m sure that one can find an MBA program cheaper than $100,000. What’s a good price you ask? According to Bankrate, the average MBA Program can range from $55,000 to $170,000. The price swing varies based on school type, full time or part-time student and whether or not you plan to include room and board or commute. Private Schools cost more than Public Schools. Room and Board can add up to be half of the total cost.

Thinking thoroughly through the process of how to pursue an MBA Degree without going deep into debt is of paramount importance. That’s where the critical thinking skills you learned obtaining your undergraduate degree comes in handy.

How do you cut costs? You can consider an online MBA program. You can consider a Public College over a Private College.  You can work full time for a company who offers tuition advancement or tuition reimbursement as a part of its benefits package.

Most of the people I’ve talked to who have an MBA are proud of their accomplishments. However, many of those same people don’t believe having an MBA gave them the competitive edge society would have us to believe. 

The $100,000 question is this:  How much would taking on the expense to obtain an MBA increase your “real earnings” not your “earning potential?” You can’t spend potential. That too requires some critical thinking. Put your thinking cap on Joe College. How much more do you realistically think you’ll earn after obtaining your MBA?

They want to pay $2.1mm in cash to build their forever home? They currently have a $7,000 per month income. Can they afford it?

~Article appeared in Marketwatch

We have over  $5 million in savings and earn nearly $7,000 a month. Should we spend over $2.1 million to build our dream home?

We are thinking about building a modern home on 26 acres in the Texas Hill Country. We would pay cash; the estimated costs to build excluding the land is $2.1 million. Including land, it would be close to $3 million in value. We are retired and this would be our forever home and an investment.

We have $3 million in retirement savings, a 401(k), stocks, bonds and cash, and the $2.1 million is in addition to this. We have a monthly income of close to $7,000 from bonds and pension. We are both approaching 65 years of age. We think this would be a better investment for the $2.1 million instead of putting it into the stock market or bond market.

Damon says:

This couple has done an AMAZING job managing their money. With over $5.1mm saved, they’re multi-millionaires. They did this on what appears to be a slightly better than average annual income. Their current income is $7,000 per month or $84,000 per year. I wonder what their salary was during their working years.

How were they able to amass over 5.1mm? Their answer to that question would be a part of my recommendation. Keep doing what you’ve been doing! Clearly it worked! They think purchasing this house for $2.1mm in cash would be a better investment than investing that same money into stocks and bonds. I find it interesting that’s their rationale considering the fact it was because of them investing in the stock and bond market they’ve amassed enough money to write a check for $2.1mm to pay for a house.

It will not be a better investment. I’ll give two reasons: 1.  Although the housing market is booming right now, the average appreciation rate of a house is approximately 4 percent per year. Whereas, the average return on investment in the stock market is 10 percent per year. 2. Your primary residence isn’t an investment. It’s not generating an income. It’s a place to live.

The question is can they afford it. You’d think if they can write a check for $2.1mm – $3mm to purchase the property in cash, surely they can afford it.

With a current income of $7,000 per month or $84,000 per year they cannot realistically maintain a $2.1mm house even if there’s no mortgage. I have guardrails I teach to ensure people don’t fall off track financially. With regards to housing, one of the guardrails is this. Purchase Price should not exceed 3-times your annual income. With an annual income of $84,000 per year, you’re looking at a purchase price of approximately $250,000. By paying cash, they can cheat up on the purchase price—but not by $1.85mm. Another guardrail is principal, interest, taxes, and insurance should not exceed 30 percent of your take home pay. With no mortgage, there’s no principal and interest. Only taxes and insurance. Monthly payments on taxes and insurance should not exceed $2,100 per month or 30 percent of $7,000.

Per this article property taxes and Homeowners insurance will cost approximately $40,000 per year or $3,333.33 per month.

In order to maintain, upkeep, and pay taxes and insurance on this $2.1mm home they’d be forced to liquidate the savings and investments they’ve worked hard to accumulate.

I took a conservative position above for illustration purposes. I didn’t factor in income generated from investments. After taking into account income generated from the full $5.1mm in investments in addition to their $7,000 monthly income, their price range should be no more than $1mm. Even in TX, you can find a nice property for $1mm. More importantly, by keeping the purchase price at a more affordable $1mm, they can have a beautiful home, drive nice cars, travel the world, give to charities they believe in, leave an inheritance to loved ones, and not worry about outliving their savings.

(Damon Carr, Money Coach can be reached @ 412-216-1013 or visit his website @ www.damonmoneycoach.com)

 

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