Why a Graduate Degree Could Be the Worst Financial Decision You Make

It’s that time of year again. Winter is fading away. The birds are chirping, the flowers are blossoming—and the stress level of college students across the country, many of whom will be throwing their caps in celebration after a laborious four years, is reaching its peak.

Congratulations to the class of 2017!

After a couple of months, the caps will have been gathered, the celebrations will come to an end, and then it will be time to enter the “real world.” What does that mean?

Many of the recent college graduates will quickly throw themselves into the first job they find and will receive a significant pay increase from their internships. This is a great way to start out, but just remember to live below your means and save!

Others will quickly be in pursuit of their next degree. Law School. Med School. MBA. Masters in Underwater Basket Weaving. The works!

Few will take a step back, think about the cost of this graduate degree, the time and effort they will put towards that degree, and what their lives will look like upon completion of that degree. Few will realize that the degree they are pursuing is significantly prolonging financial freedom and what they really want—to live a happy life and provide for the ones they love. Read on so we can explore this together.

Reasons for a Graduate Degree

Before we take a step back and decide whether graduate school is for us, I want to start by saying this.

The decision ultimately depends on YOUR goals.

Do you want to spend countless hours each week litigating and writing contracts? Or do you want the paycheck that ensues?

Do you TRULY want to spend 50+ hours diagnosing sicknesses and prescribing medicine? Or do you want the paycheck that ensues?

Do you want to spend 100+ hour weeks in an Excel spreadsheet? Or do you want the paycheck that ensues?

My point is this: If you are truly passionate about the former of my last three points, start applying now! If you are doing it so you can make 6+ figures, if you are doing it to provide for the ones you love, close out of that grad school application and keep reading!

Bachelor’s vs. Graduate Degree

Graduate Degree

Meet Jane, a 27-year-old law school graduate who just landed her dream job as a lawyer in New York City. Finally, all of her hard word has paid off! She makes $150,000 a year, rents a nice apartment in Manhattan, and frequently finds herself with her co-workers and lawyer friends enjoying a drink at the rooftop bar in midtown.

After five years of hard work and networking, Jane is now 32 and has risen up at her law firm. She has DOUBLED her income. Yes! She now makes $300,000 a year. She has married the man of her dreams (a lawyer as well), moved to the suburbs into a beautiful new home, drives a luxury car to work, and her first child is on the way. Sounds like a great life, doesn’t it?

While this may seem great, what this American “success story” fails to reveal are the costs associated with such luxuries.

Jane has a mortgage of $800,000, student loans of $200,000, and a car loan of $50,000. Sure, Jane works a great job and has the ability to “afford” these things with the help of a bank. Her friends and family think she is well off.

In actuality, this lavish lifestyle has inhibited her ability to save. She saves a minimal amount into her retirement account each month as recommended by her employer. Even still, with her mortgage, student loans, and car loan, she actually has negative net worth.

Yes! The smelly, unkept man with an overgrown beard shaking pennies in a Dunkin’ Donuts cup is worth more. Who would have thought?

Jane is consistently working 100+ hours per week. She has no time to spend with her loved ones, and her stress levels are through the roof. She is stuck in this situation until a change happens. She either needs to scale back her lifestyle (psychologically draining) or increase her income by working harder (physically draining).

I wish Jane the best of luck!

Let’s visit Jimmy.

No Graduate Degree

Meet Jimmy, a 22-year-old college graduate who just landed his first full-time 9-to-5 position as a financial analyst at a Fortune 500 company. Jimmy makes $55,000 per year, has $60,000 in student loans, and quickly realizes there is more to life than working his tail off in a dusty cubicle to make his boss 10x richer.

He NEEDS to make a change.

He starts reading! After reading a few of the classic personal finance books, Jimmy knows what he needs to do. He needs to purchase true assets—assets like real estate and high yielding dividend stocks that consistently pay him. In order to do this, Jimmy needs to save.

In his first two years, Jimmy lives well below his means. He lives in a small apartment with roommates. He’s purchased a used vehicle. The purpose of this vehicle is twofold. It is used for his commute to his day job as well as driving for Uber in his spare time. Over the course of two years, Jimmy makes minimum payments on his student loans and saves $40,000.

With this $40,000 in savings, Jimmy uses $20,000 to purchase a $400,000 multifamily property using a FHA loan. He lives in one unit and rents the others. Jimmy is now living for free while his tenants pay down his mortgage. Saving on rent has eradicated Jimmy’s largest expense.

With his added savings, Jimmy’s life does not change. His budgets remain the same. The only difference is he has increased his savings so that next year he can do it again, at a larger scale.

The next year, Jimmy refinances his first property and purchases two more—one through an FHA loan and the other through conventional financing. Over the next five years, he continues to snowball his rental property portfolio.

Now Jimmy is 30 years old and VP of his team, making over $100,000 per year. He recently married and now has a rental portfolio of over $1,000,000. He is earning enough money through his rental properties to cover his living expenses such that his W2 income goes straight to savings.

Jimmy is officially free from the rat race! Next stop: Hawaii!

Not so fast!

Post Freedom

Jimmy quickly realizes that if he does quit his job now, he will no longer be able to contribute to his savings. He will be limiting himself to his current lifestyle—no children, no nice house to shelter his wife and kids; just the multifamily properties he has have been living and investing in for the past few years.

What Jimmy does realize is that he has an option to continue working.

Does he want to quit his job and focus solely on doing deals to grow his rental portfolio?

Or does he continue to work for a few years, increase his W2 income, and pick up a few more properties each year before elevating his lifestyle? That way, when he’s ready to forego the W2 income, he can transition to focusing solely on growing and maintaining his rental portfolio.

I will leave that decision up to Jimmy.

Either way, Jimmy will likely be set to “retire” in his mid-30s. I put “retire” in quotes because he will still have to manage the properties and will still be looking for deals to expand his portfolio. However, he has gone from working 40+ hours a week making someone else’s dreams come true to working just a couple of hours each week while living his dream.

He can now dedicate his time to what matters most to him: his wife, his newborn children. He can travel with his family. He can go to every little league game, every dance recital. The possibilities are endless.

And all of this without a fancy degree!

Let Me Ask You This

Who would you rather be? Jane? Or Jimmy?

For me, it’s a no-brainer.

What’s your opinion: Is a graduate degree usually worth it or not? (Or does it simply depend on the situation?)

Weigh in with a comment!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.