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One of the reasons I love doing case studies is because our readers come from such a wide and varied background. Sometimes they’re tech entrepreneurs, sometimes they’re non-traditional earners such as actors or artists. Today’s case study is from someone still in school and wondering what the right move is to set themselves up for a FIRE-friendly career, which is an excellent questions that I wished more people asked at that stage of their careers.
So without further ado, let’s dive in, shall we?
To Grad School or not to Grad School…
That is my question! I absolutely adore your FIRE blog! It is so inspiring and I have been reading it like crazy these past few weeks.
Currently, I am graduating my undergraduate degree and I am 22 years old. My partner is graduated from undergrad and has a full-time job. Right now I am trying to decide if I should get into debt and spend $70000 over three years to attend law school. I don’t have any way to pay for law school other than a small part time job earning less than $1000/month, so I am planning on taking on student loans or lines of credit. I read your article that explained that FIRE can even work on an income of $50000 a year (which I could start right after graduation) is it worth it to delay that income and try to become a lawyer? People around me tell me that lawyers make bank and that I should absolutely pursue that life… But I don’t want to have to be a Bay street tycoon to reach freedom. My partner and I want to reach FI and we are just at the beginning of our careers. What is the value of education beyond a bachelor’s?
Our gross/net annual family income is around $38000+?
Our monthly family spending We spend around 3000/month mostly on food, transportation, gym etc but planning on using YNAB or mint to track, budget and cut unnecessary spending.
We have no debts.
We have no fixed assets.
Our investments or savings (cash, bonds, stocks, etc.) We have about $15,000 saved up so far together, but it’s totally not planned or budgeted.
Almost $4000 of that is invested in ETFs and bank stocks in my TFSA which I want to use to start saving for FIRE!
This one stood out because it’s different from the usual “when can I retire” questions. It made me wonder “is a master’s degree worth it?”
Now, having only a bachelor’s degree, I can’t attest to whether the additional tuition is worth it, but Wanderer has a Master’s degree. I remember him complaining incessantly about having to bust his ass earning said degree while working fulltime. As result, it took him double the amount of time (4 years) instead of the normal 2-year period. Funnily enough, he actually never ended up using said degree as he didn’t need it to get to FI, so in that sense, it was time and effort wasted, BUT, at least he didn’t have to pay for it since his tuition was paid for by his job. So, it’s worth exactly what he paid for it.
In GSD’s case, not only is her work not paying for it, she is relying on a job paying less than $1000/month and debt to fund it.
As you know, I hate debt with the force of a thousand waterfalls, so naturally, this made me wince. But, as you know, decisions like these are best made with hardcore math and not feelings, so without further ado, let’s MATH THAT SHIT UP!
Option 1: Working toward FI with current salary
|Salary (After Graduation)||$50,000 gross|
|Expenses||$3000 per month, $36,000 per year|
I’m quite impressed that GSD already has $15,000 saved at just 22 years old and given that she is only working part-time while in school.
She mentions her expected full time gross income after graduation is $50,000. Plugging that into a tax calculator, we get a net salary of $41,481/year after maxing out tax sheltered contributions.
GSD gave us her current spending of $3000/month, which seems to be the combined spending of her and her partner. However, because we don’t know what his earning potential is (or even if they’re going to stay together long term), it would be unfair to use this number as is since that would be modelling her earnings to pay for both of their spending.
So we’re going to estimate what her individual spending is. A good rule of thumb is to take around 60% of it, since as a single person you’d have a harder time using economy of scale to reduce housing costs. This is of course an estimate, so if GSD has more accurate numbers on her end, she can plug in her spending into the below analysis to get a more accurate model.
So 3000 x 60% x 12 = $21,600/year spending for one person, which gives her an FI target of 25 x $21,600 = $540,000. Assuming a $41,481 net income after graduation and a starting net worth of ½ of the $15K they have saved together, GSD should reach FI in:
Around 16 years.
That might sound like a long time, but remember that she is only 22 years old. At that trajectory, she would become FI at around age 38, which is really impressive.
Now let’s see if her time to FI improves with the addition of a law degree:
Option 2: Increase Salary with Law Degree
When it came time for me to decide on my degree, I picked Engineering over Creative Writing based on a formula I describe in our book called the POT score.
And it paid off! Because as it turns out, after I started writing children’s novels on the side while working as an engineer, the median salary of an author was $10,000/year. Less than minimum wage, so I’m super glad I used the POT score rather than feelings.
So, let’s apply it to GSD’s case.
POT stands for Pay Over Tuition and it works like this:
POT = (Annual Pay – Minimum Wage)/Tuition
Since you don’t need a degree for a minimum wage job, it helps you figure out whether the degree is worth it. And if you can’t make enough to pay back your tuition, the degree is not a worthwhile investment.
GSD is considering a law degree. According to Talent.com, the average salary of a lawyer in the most populous province is $100,000/year. The minimum yearly wage is $31,200. So in order to get into debt to pay for the law degree, the amount earned over the minimum wage must be worth the effort. Given that a 3 year law degree would cost $70,000, the POT score is:
POT = ($100,000 – $31,200)/$70,000 = 0.98
Not great. Since this score is below 1, it means the degree is not multiplying your salary over minimum wage enough to offset the high cost of the degree.
Plus, given that GSD’s is already about to complete her bachelor degree that will secure a $50,000/year salary, we’re not really comparing not going to university at all and working minimum wage versus law school. We’re actually comparing her finishing her undergrad and earning $50,000/year versus earning $100,000 after law school. In which case our modified POT score becomes:
POT = ($100,000 – $50,000)/$70,000 = 0.71
Ouch! Even worse. And not only that, GSD doesn’t just have $70,000 in cash just lying around. Not only would she have to go into debt, she would also lose 3 precious years where she could’ve been earning the $50,000 salary. This means she’d incur more debt to cover her living expenses during those years.
Assuming it takes 3-5 years after she starts working as lawyer to pay off this debt, this would tack on to the 3 years she’d be stuck in law school, pushing back her time to FI by an additional 6-8 years.
However, with a $100K salary, after tax that would be $79,076. If GSD avoids the potential lifestyle inflation driven by this fancy new degree (doubtful) and keeps expense as $21,600/year for a single person, she would reach FI in:
Around 7.5 years.
Now that sounds great, but remember that she had to go to law school and then pay off that student debt, which adds an additional 6 years. That means that the actual answer is 13.5 years, which means she’d be FI at age 35.5!
So is this a win for law school? Eh, not quite.
Reducing time to retirement by 2.5 years isn’t that huge, considering the risks and costs she’s taking. Remember, this is all under the rosy assumption that a) her cost estimate of $70k is accurate, b) she graduates and c) she successfully finds a job in her field paying the median salary. If any of these assumptions turn out to be wrong, she could potentially be in for a world of hurt if she ends up stuck with the student debt but no job to pay it off. For a risky bet like this, the potential upside has to be a whole lot higher than just 2.5 years for me to feel comfortable recommending it.
This feels like a risky bet to me, especially given that less than stellar POT scores of going to law school.
So, in terms of whether to get the law degree, I would say only go for it if your current bachelor’s degree doesn’t end up securing that $50,000/year job, you are committing to finishing the law degree in 3 years AND you can be sure that you’ll earn a 6 figure salary straight out of grad school. If any of those stars don’t align, I wouldn’t risk it.
If GSD wants to increase their earning power, given their young age, I would consider pivoting to tech or even considering an associate degree in the trades. Again that depends on GSD’s skills and preferences so only she can answer that question. Take a look at some fields, calculate the POT score and see if it’s worth it.
With a $50,000 gross salary, low expenses, and a partner who also earns an income, given that she is only 22 years old, she has lots of time to get promotions and raises at work to improve her earning power. I’m not convinced grad school is worth it in this case.
What do you think? Should GSD go into debt to go to law school, or should she start working right after undergrad? Let’s hear it in the comments below!
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