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Yet another financial advice question
December 31, 2012 3:56 PM   Subscribe

I need some advice about career plans, graduate studies and whether to rent or to own. Mostly in the financial context but also, of the bigger picture view -- am I being overly optimistic, am I too focused on career?

I graduated in 2005 with a bachelors in science and started working as a programmer in the financial industry. Along the way, I grew to dislike the technical work and especially the culture, and decided I'll be much happier working closer to the business side. I now work in an analytical role that's between the technical and business sides (read: middle office) and enjoy the work and the fit.

I like where I am for the time being but I know that in one or two more years, I'll grow restless and want a more challenging job to learn more. Compared to the people I meet and work with (and where I have some ideas about working next), I have the soft-skills and technical skills but lack the strong financial background.

I started pursuing the CFA designation last year to fill in that gap but I find the syllabus and its study mechanical, lacking in substance and frankly, lonely. I'll write the second exam this coming June but I think graduate studies will fill my needs better.

Between an MBA and an MFin (master of finance), I've landed on the MFin and on a very specific program in my city. I've met the program director, the recruitment team, audited a full class, interviewed the current cohort, met with a program graduate, and the impression all around has been solid. Plus, the average student is 30 and established compared to the typical MBA student. I am ready to submit my application and am reasonably sure of gaining admission. The downside is that it's a two year part-time program and will cost me $45K each year.

In between all this, I am the only one amongst all my friends, younger and older, that is renting in this era of low interest rates. Some of my older friends have even confided to me that they have bought investment condos. (And they have young kids too.) I have no great desire to own my home but I do have great desire to not be financially stupid. Continuing to rent will not leave me in ruins but I think I might be foolish to continue when interest rates will remain low until the US economy recovers (read: reach full employment in the Federal Reserve's view).

Lastly, relevant facts:
  • I am 30, single, male and a visible minority
  • I have no debt other than the credit cards that I pay in full monthly
  • I have cash savings of $15K, an investment portfolio of $95K and an incentive of $30K should I stay with my employer for another two years
  • I also have tax sheltered investments of $80K that I cannot draw until I retire (or with extreme penalty)
  • of my after-tax net income: a third goes to rent, a third goes to savings & investments and the rest is spent
  • my parents are in their late sixties and in good health and I do not need to support them financially for the time being
  • minor note: my monthly contributions to savings and investments have a tax reducing effect so if I instead use this cashflow to pay off tuition, my taxes payable actually increases
My concerns:
  1. I don't expect a huge salary increase for completing a masters degree. I am doing it for my own fulfillment and to access more opportunities than I would otherwise have. The ROI in cash terms is actually quite low. And I've met a lot of people who are doing or have done the tech to financial career path change so my skills are by no means unique. Am I pursuing graduate studies for the right reason, especially in these economic times?
  2. Since the 2008/2009 crisis, I've focused a lot on the career side of things to make unemployment less likely and have built up considerable savings in case I do get laid off. Friends around my age have instead focused on building home equity and starting families. Part-time graduate studies on top of full time work will only make my dating life, nevermind a steady relationship, harder. Am I focusing too much on the wrong things?
  3. Finally, am I stupid for renting and maintaining an investment portfolio?
posted by table to Work & Money (9 answers total) 3 users marked this as a favorite
 
You aren't stupid for renting and I say that as a homeowner.

It only pays to rent if you plan on being in the home for over 7 years. There are a lot of up-front costs associated with buying and it takes about that long to recoup them.

Renting may actually be less expensive in the long run.

I have spent thousands of dollars on such attractive and fun things as:

Hardie Plank on the back of the house
Tankless Hot Water Heater
Sewer pipe from house to the city sewer line
Landscaping, both before and after digging up the sewer line
Cleaning gutters
Pruning trees
Removing dead trees from our property
Monthly lawn service
Gardening
Upgrading the electrical service.

That doesn't even touch the cosmetic stuff we've done. Had I known that my house would LOSE value, and that I'd be coming out of pocket for something every 5 mintues, I'd still be a happy renter.

Think long and hard about home ownership.

As for school, check into the Tutition Aid program at your job. Most companies have one, especially large corporations. If you time your payments right, they should pick up about $15,000 (some next year, some the year after, the third payment the following year.) That's how I did my MBA. I paid NOTHING.
posted by Ruthless Bunny at 4:08 PM on December 31, 2012 [3 favorites]


Have you looked at the calculators that examine the issue of when it makes sense to buy? Generally, if you think you're going to move within five years, I don't think buying is a good idea. If you can get a 30 or 15 year fixed loan where the monthly payments are on par with a rental and you can afford to live there indefinitely, it's not a terrible idea. But do your due diligence regarding various what-ifs: what if you got married, had 11 kids, got an awesome job on the other side of the world.

IMHO buying a place just because it's a good investment is not the greatest idea ever. Buying a home is one of the biggest investments you'll ever make. It's not meant to be the kind of investment you just flip, it's a home. Maybe I'm too sentimental about home ownership but I think the lack of sentimentality regarding home ownership and looking at housing just as an investment contributed to the housing crisis. YMMV.
posted by kat518 at 4:12 PM on December 31, 2012 [2 favorites]


What other people do isn't super relevant to your life. Think about where you want to be five years from now. Are you in the same city? Are you married? Kids? It seems to me that you're on the cusp of big changes, and flexibility is probably going to be more important to you than stable housing. If you go to grad school, are you going to want to spend a ton of time on setting up house?

In your shoes, I'd start budgeting for graduate school in the form of liquid investments, and get cracking on the standardized tests. If you think you'll be bored at your job in 1-2 years, then you should plan on applying for the next cycle.

I'd also reconsider applying MBA programs as well, because as a visible minority you may be eligible for scholarships that will offset the cost. If you can rock your GMAT and craft a compelling application, you may be able to find yourself in a position to get your degree without paying tuition at all. Cast a wide net!
posted by snickerdoodle at 6:49 PM on December 31, 2012 [1 favorite]


It's hard to say — assuming you're applying for Fall 2013, would you even have enough left to pay for school after you use most of your savings for your downpayment? I don't know what your salary is, or how much you want to spend on a house, but I'm not sure the math adds up. I doesn't make sense to take out student loans because you need the money for a downpayment, or finance more than 80% of the house price and pay PMI insurance because you need to pay for school.

You could buy a house in the next few months, but delay enrolling until Fall 2014. That would give you some time to rebuild your savings.
posted by AlsoMike at 7:05 PM on December 31, 2012


You're clearly a smart guy with a good head on your shoulders, and it sounds like you've been doing all the right things to take care of yourself and ensure your happiness in life -- which is great!

You're realistic about not expecting a huge raise as a result of your education: also great. And it's smart that you're going to a part-time program that lets you stay in the workforce while studying. You'll be infinitely more marketable after school because you've maintained your relevance.

I'm with the hoard that says you should keep renting. It seems like the wrong time in your life to buy a house.

For one thing, you would be eliminating your safety net by moving your money to a much less liquid investment. You can't just dump a home in a hurry like you can with stocks if you lose your income and really need the money. It's so intertwined with your life, and much less straightforward to sell. And you will still need a safety net while you're in school. Also, you have clear goals you'd be taking your eyes off of in order to buy and maintain a house. I think it would just add too much to your To Do list. (If it ain't broke, don't fix it!)

I recommend you find a financial adviser to build a relationship with. Talk all of this through, and come up with a long term growth and maintenance strategy.

Lastly, you're wondering if your career goals are over-emphasized and you should be focused on family goals. We can't answer that for you, because your own reasons and rewards are the ones that will motivate you. Are you lonely and missing a relationship in your life, or are you driven and pretty happy for now?

Thing is, it sounds like you're only considering a house and a family because you've looked around and picked up on a social "should". But it seems like you've been happily marching to the beat of your own drummer for long enough to know what works for you. Don't worry about living your life at your own pace. The good stuff will come.
posted by nadise at 11:55 AM on January 1, 2013


Thank you everyone for your comments!

I know my situation is unique so just getting everyone's thoughts is helpful. I've already talked with close friends for their thoughts, but few had considered graduate studies so I am looking for more viewpoints. Especially if you had to make similar decisions, what guided your thought process?

Part of the reason why I feel kind of stupid for renting is because I live in a major financial city where rent isn't cheap. What I pay in rent for my (quite nice) 1 BR condo is only $200 less than the monthly payment on a 25 year variable rate mortgage + maintenance fee. The difference between renting and owning a 2 BR + 1 den unit is under $400 per month. I do wish to own my home eventually and there's a part of me that thinks that it's an home and not an investment, so I might as well get that going now and take advantage of the low interest rates. But yes, I understand property tax, upkeep and repairs add quite a bit on top.

I've used the NYT rent or own calculator to get 7 years as my breakeven point (the same number Ruthless Bunny gave). And I do see myself in this same city, hopefully married with a young family in that timeframe.

I've talked with my HR department about covering graduate school tuition and they will not commit to any reimbursement or sponsorship. Unofficially, it will be a case by case scenario and I think I can build a business case for a part time study in an MFin after I gain admission and present actual dollar figures.

I gave up on MBA because when I went through the research process, attending MBA mixers and talking to graduates in my field and my social circle, I did not get the impression that it was worth the time & money unless a) someone else was paying for my degree, b) I was aiming to get into investment banking or management consultancy, or c) I go to a top 5 US program and know exactly what to specialize, what internships to get, and which groups to network with on day one. The first two don't apply and as for the third option, the top programs are incredibly competitive and not too friendly towards the experienced worker. My ethnic minority is well-represented too.

As for relationships, I am dating with a view towards a long term, committed relationship. It's not a clear black and white feeling, but if things had worked out differently, I think would have enjoyed starting family life by now. I think I can still achieve more professionally but I am missing that companionship and love in my life. That's probably an AskMefi for another time.

Right now I think I have the following choices:
  1. Forget school, maintain current career path, continue to rent and tweak the work/life balance. This is the easiest and most straightforward option but at same time it feels overly conservative and not making the best of my opportunities.
  2. Pursue part time graduate studies (fall 2013), continue to rent and play it by ear. Still feels conservative but truer to my career aspirations.
  3. Pursue part time graduate studies (fall 2013) and condo hunt starting now. I've crunched the numbers and I can pull it off if I settle for a 1 BR condo and not be unemployed for more than four months in the next two years. Great risk but I would potentially be taking two opportunities I may not get again.
  4. Purchase condo this year and delay graduate studies until fall 2014. Less risky than the third option as I'll have rebuilt my savings but 2016 is a long time from now.
I am leaning towards the second choice. As a sounding board, am I being too conservative when I am still young and have little to lose? Are there other considerations I may have missed?
posted by table at 8:26 PM on January 1, 2013


I think your reasoning is quite sound. "Conservative" isn't a bad thing -- you have to go with what's within your risk tolerance and helps you sleep soundly at night. Plus if you want kids, it's quite likely that you'll outgrow a 1BR within 7 years (says the person who just closed on a new condo in a panic as we and baby #2 race to see who finishes first). Also, it's nice to pick a place together with your partner. Don't forget that down payments, closing costs, setting up house, etc. will all put a serious dent into your savings.

Who knows -- the perfect person may be waiting for you in one of those classes!
posted by snickerdoodle at 10:00 PM on January 1, 2013 [1 favorite]


Thanks for the confirmation.

Yea, a 1 BR will definitely be a stepping stone to trade up for larger homes. The idea is to pile as much cash into the mortgage while rates are low and more of each payment goes towards principal, and hopefully pay it off before rates rise dramatically.
posted by table at 6:51 PM on January 2, 2013


Hi.

I just wanted to provide an update to let others know what I chose and how things have turned out so far. Hopefully this'll benefit other people trying to make a similar decision.

I ended up applying to one masters of finance program and one MBA program. It really came down to fit and culture first, then cost/return. Every program has its own character and once you get past the general marketing material and talk with alumni and current faculty & students, you start painting a theme for that school. I also stayed away from programs where I couldn't discern a culture, it didn't bode well for the people I'm likely to meet in class or for the professional network post graduation. After throwing away programs where I didn't feel a good fit for, total cost and post grad job opportunities for my target field whittled the list down to just two choices. I applied for both and spent two intense weeks on each application.

I'm now more than a month into my finance program and it's been great so far. Working full time and doing part time graduate classes has been hard, especially with the other hobbies I'm keeping but also very fulfilling. I don't know how long it'll take me to recoup my costs, but in terms of time well spent, I'm learning exactly what I want and meeting like-minded professionals.

I've also decided to keep renting for the time being. Partly because I don't think the numbers can work out for buying a home (found myself spending a lot more now that I am out most nights of the week or otherwise studying) and partly because I didn't want to add the stress of mortgage payments on top of everything should I get laid off or interest rates suddenly jump.

I don't know about finding love, but I'm quite happy with the way everything else has worked out.
posted by table at 10:48 AM on September 29, 2013


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