Friday, March 2, 2012

Time Value of a Degree

The above chart is a simplified way to look at income.  It does not take into account the multiplier effect of benefits such as health care, retirement benefits, paid vacations, bonuses, stock options and the like.  

The point is that while you are in college you will notice your non-college friends having more money, stuff, and free time than you. 

Since the dropout rate of college is high in the first year, there is an exponential effect as more and more friends seem to be much happier as they drop out and start having fun.  It’s times like this that you need to remind yourself of the deadbeat threshold.  Right about the time you complete college your non-college friends are beginning to get kicked out of their households.  

When a deadbeat is kicked out, it is devastating to them because they do not have enough earning power to keep them out of poverty.  Add to the fact that many of these folks have kids and a family to take care of at this point.  Fast forward another five years and if you have managed to limit your college loans and have been saving, you should be able to think about buying a house!  This assumes you are married to another college wage earner.  DINKS (double income no kids) have the added ability to save very quickly because costs are so low. 

For those who want to attend a distant college remember that living and working on campus saves a lot of commuting time and gas money, but dorm and food plan costs more.  You can lower this cost if you are willing to rent a room near campus, but this brings some additional issues to consider.  How will you commute to school and work?  What will be the living arrangements and legal agreements among roommates?