Today marks the first of October, which means it’s the ninth month of my net worth series.
I am documenting my progress towards reaching $1 million net worth and $30,000 in annual passive income before I turn 30.
If you’re interested in seeing how I got to this point, you can check out the beginning of the series here.
Are Student Loans a Good Idea?
Let’s talk about student loans.
More broadly, let’s talk about the opportunity cost of going to college.
For those of you who have followed the series closely, you’ll know that my wife, EmilyAnn, is attending Northwestern University studying audiology. It’s a solid program, but it’s expensive.
Despite the expense, we’re still going through with it and taking out debt to do it.
Before you make a decision to go to college, you have to understand what your current earning power is.
If you were to pick up a salaried job tomorrow, what is the likely salary that you could make?
In EmilyAnn’s situation, out of undergrad, she could have made around $40,000 a year, plus or minus a few thousand, before she decided to go through with her audiology doctorate.
Meanwhile, I’m attending law school, but I am doing so on a full ride scholarship. If you want to learn about how I managed to swing that, you can check out my YouTube video on the same topic here. And here’s the actual personal statement I used in my application.
Similarly, I was making $40,000 per year right out of undergrad before (and during) the beginning of law school.
With this as a baseline, let’s do an economic analysis of making the decision to get a degree.
For our purposes, I’m not going to talk about the intangible benefits to picking a degree – whether it be fueled by fulfillment or a passion for a specific career path.
Even if you do a degree primarily to pursue a passion, there’s still a cost. After all, every decision ever has a cost.
The Opportunity Cost of Getting a Degree
A lot of people go to school thinking that they’ll make a lot of money getting out of it.
That’s not always the case, so it’s important to weigh the likely payoff, not just the ideal payoff.
- Salary Gains
EmilyAnn wants to become an audiologist. Before making a decision to commit to a school, we wanted to see what exactly audiologists could reasonably expect to make.
The median salary of an audiologist in the Chicagoland area is about $70,000 per year.
So, if EmilyAnn becomes an audiologist and lands a typical audiologist job, that would imply a salary boost of about $30,000 annually.
- Cost of Tuition
Of course, our analysis does not stop there – there is a cost to go to school.
In Northwestern’s case, that is a very high cost.
All in all, the degree would cost about $150,000 between tuition and interest costs.
That’s nothing to scoff at.
- Time Cost
EmilyAnn has to spend three years full-time at school where she can’t be working a full-time job.
Assuming she would have been working a job making $40,000 per year instead of going to school, over three years, that’s $120,000 in lost wages. She is working part-time to make up some of this loss, but we’ll keep it simple for this example.
- The Financial Analysis
Altogether, the total cost of the degree is more like $270,000.
The expected “raise” from completing the degree would be $30,000 annually.
With this information, we can determine that EmilyAnn would have to work for 9 years in this field to make this degree worth it financially – if she makes the median salary.
If she makes more than the median salary, the window will shorten. If less, it will extend.
The Decision to Take Out Student Loans
So long as EmilyAnn wants to work around a decade as an audiologist, the decision to go for the degree makes financial sense.
That’s a big reason we’re going through with this otherwise expensive decision. EmilyAnn’s earning power should increase significantly, so taking out debt to finance the degree and missing out on short term earnings makes sense here.
Of course, there are plenty of other factors to weigh. And there are financially more lucrative paths to choose. In any event, it’s important to understand the financial sense (or nonsense) of pursuing a particular degree.
Everything is a trade off.
Anyways, it’s time to dive into this month’s numbers.
October 2020 Net Worth Numbers
Before getting into the numbers this month, I wanted to note that our tenant in our out-of-state rental property did pay rent for September. The tenant was behind on rent when we got the property, so it looks like the tenant is back on track financially – which is fantastic.
That being said, last month we were at $85,574.22 net worth.
Assets – October 2020
We’re still sitting on about $30,000 in cash. I’m slowly moving that into opportunities that I see in the market.
September was, unfortunately, not as kind to the markets.
I recently explained an investment I made into CVS, because I think it’s slightly undervalued. I am pivoting increasingly towards the “value investing” framework when it comes to stocks.
That is, I’m looking for undervalued stocks based on their fundamentals rather than blindly investing into companies and indices. Though index funds will remain a significant portion of the portfolio. The “value investing” school seems to fit well with my real estate background. We’ll see how it goes.
In the meantime, I’m still hunting for a smaller real estate deal, if possible. I’m even considering a flip in my local area. We just want to keep some cash on the sidelines since there will be some opportunities in the near future, I’d imagine.
Valuations are a little crazy right now, so the stock market did falter a little bit. I want to stay nimble and be able to capitalize on different opportunities. But I would not plan on liquidating the portfolio or something drastic like that.
All told, we’re sitting on $394,505.30 in assets.
Liabilities – October 2020
As a follow up to the first half of this article, we took out another chunk of student loans. We probably have about $50,000 left to take out on the degree over the next year and a half.
It is a little frustrating because it knocks down our apparent progress we’ve made in other months. Like I said, we have to trust the process.
I’ll keep paying down this HELOC balance in the meantime. It’s only at 2.25% but it is variable rate and it’s revolving. I think using this as sort of a checking account for new cash is probably optimal.
Once I graduate law school and start making a real salary, I will be focusing a lot more on this HELOC and the promissory note – that note is due in August 2023.
I’d think we’ll be paying down a lot of debt in the next couple of years rather than investing as heavily.
Anyways, that leaves us with $325,847.10 in total liabilities.
My Net Worth – October 2020
With that said, our net worth has fallen to $68,658.20.
This is a total loss of $16,916.02 from last month.
Our debt ratio has risen to 82.60%.
And our monthly passive income is still at about $350 per month.
Like I said, we’re still looking for opportunities.
Thankfully our expenses are very low so we can remain pretty flexible, all things considered.
We don’t have a ton of cash, but we do have enough to make a pretty sizable move if we wanted to. We’re constantly looking for rental properties and more plays in the stock market.
I think the overarching theme in the next few years will be deleveraging since we have a significant debt load between the student loans, HELOC balance, and promissory note.
But we want to increase our earning power first.
To that, we’ll see if inflation kicks in and eats away at our debt for us, which would lighten the burden.
That would make our position a lot better, just because we have a significant amount of fixed-rate debt. We’ll see what happens over the next few months – we do have elections coming up, so we’ll see how that’ll shape up.
We’re almost at the end of 2020 which has been a brutal year for many people. Ideally, there’s a fast approaching light at the end of the tunnel and we can come out of this stronger for the long term.
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