Tag: Personal Finance

Should I go to university?

Should I go to university?

Woah, heavy question and fraught with variable answers based on your personal situation but this blog post will focus on whether going to university is a worthy investment.

Investing in a degree is investing in yourself and your future earnings potential. It’s clear that people with a degree can expect an earnings premium and are generally recruited to higher positions than those that do not. This premium has been calculated by Statisticians Jaison Abel and Richard Deitz to be around £240,000 over a lifetime.

For example, people with degrees earned an average of £12,000 a year more than non-graduates over the past decade. The mid-point salary of graduates aged 22 to 64 was £29,900, compared with £17,800 for non-degree holders. If you are a graduate and aren’t earning anywhere near that then learn how to get a pay rise.

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My personal circumstances

If I consider the cost of my education to be £12,000 (the size of my student debt pile excluding living expenses) and the opportunity cost of the three years that I spent at university where I could have been working to be £37,400 (£17,800 non-degree salary x 3 years minus living expenses). My graduate degree has cost £49,400 in total. If I earn £240,000 more due to my degree over my lifetime then that’s a 380% ROI or 10% per year over 40 years. That’s a fantastic rate of return!

Fees were just £3,290 when I started university and interest rates are BOE base rate plus 1% or 1.25% as of writing. I was pretty lucky.

What about today?

Would I have gone to university with today’s fees and interest rates? With fees at £9,250 and interest rates of Retail Price Index (RPI) + 3% (6% as of writing!) My gut feeling says no. But let’s run the numbers.

Debt pile: £27,750 (£9,250 x 3 years)

Opportunity cost: £40,400 (£18,800 non-degree salary in 2017 x 3 years minus living expenses).

Total cost: £68,150

ROI: 252%

That’s a 6.3% ROI per year over 40 years which isn’t bad but the stipulation comes with that spiky interest rate. Central bankers will target Consumer Price Inflation (CPI) to be around 2% per year. RPI will be similar if not slightly more. Historically RPI is about 1% above CPI so real ROI after interest repayments is 0.3% or rounded down to nothing. Don’t believe me? Here is a BBC article which says the same thing independantly.

So, I shouldn’t go to university, right?

Wrong, it’s not always all about money. My degree has allowed me to open doors to opportunities that I would never had access to and has allowed me to compound my wisdom exponentially. I have always had a natural acumen for business but studying it alongside a language expanded my mind in so many ways. The return on investment may be 0 but the return on your life will be immeasurable. It also focuses your mind on where you want to go and what you want to do.

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Life without a degree

Remember, if you are reading this then you probably aren’t the average non-degree person. You don’t have to earn £18,800 – your potential is limitless. Look at Bill Gates if you don’t believe me. If I hadn’t gone to university then I would have invested more time to self learning. I may have built some kind of business. That’s equally as exciting and leaves a lot of what if statements.

Personally, I’d say no to university at the current prices.

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How to get a pay rise

How to get a pay rise

Pay reviews are upon us!

Your lifetime savings are significantly impacted by every pay rise that you receive. £25,000 today at an average pay rise of 2% means that you’ll be earning £41,000 in 25 years. This means that your wage has kept up with the economy at best and you have had no real inflation adjusted wage increase. A millennial’s tendency towards loyalty means that they are grossly underpaid in their roles, but they do nothing about it. Let’s get this straight – you can!

Before you start thinking about your pay rise you need to think about your worth. There are two perspectives here, your self-worth and the value you add to your company. The below five steps will increase your chances of getting that meaningful pay rise.

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1. Calculate your fair market value

What is market value? Market value is the value that employers would pay if you were to get a new job at the market average rate.

How much do you think other companies would pay you to do your job? If you’ve been in your job for 5 years with the same company and have only received a 2% pay rise per year because the company “is experiencing tough times” then the market has probably moved on! Trust me, your skills are commodities and they follow simple supply and demand dynamics so some positions have wage growth of +12% per year.

If you have a position which is sought after then you have no doubt been head hunted and approached by recruiters. I tend to log these interactions and gather the required information from the recruiter. Ask them what the salary range is, what perks could you expect. Print it out and save it for your pay review (if you have a structured one, if not I’ll come to that shortly).

If you don’t have a sought-after position then worry no more because calculating your market value has never been easier. You can gather lots of information from web-based tools such as Glassdoor.com or even by looking at recruitment sites. The key to an accurate reading here is having a job title which matches your position and to make sure you select location. A great tool for this is payscale.com. Here you can add your skills and experience which will give you a far more accurate reading. Recruitment firms relevant to your industry will publish detailed salary reports. After amassing all of the above information pick the value which is in the 50th percentile and save it for the right moment.

2. Calculate your value to your company

The market value can diverge markedly from real value. It’s the same as anything. It’s more subjective and difficult to calculate but it will be along the lines of the below calculations.

The cost of hiring a new employee is exceptionally high – especially employees on a salary. I know that my recruiter received 20% of my salary to place me. Depending on your job it can cost between £2,000 – £25,000+ to replace you. This is not a value that you can ask for but it will certainly add to your leverage and arsenal especially if you know that it would cost £10,000 to recruit a replacement and train them up. Remember, time is money to the employer and if you are a good egg, they might find it difficult to find someone similar.

What value do you generate? If you can quantify the value added eg; £300,000 of sales or billed time then you can demonstrate your worth in quite an obvious and simplistic way. What about them cost savings you spotted? That market opportunity you saw? The customer lead that you sourced? If you know that you have demonstrable areas where you add value then you could even link a bonus to this. Let’s be honest, sales people should push for at least 15% commissions. If you can’t sell your worth to your company then you don’t deserve to be in sales!

If you are in law or accountancy then how much are they charging the customer for your time? They are basically subletting your time – so make sure you get a decent rate on their return!

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3. Be realistic and not greedy

It will be hard for your boss to justify a pay rise of higher than 10% unless of course you are trading at a greater discount to fair value than 10%. If you are worth £25,000 but you are only being paid £20,000 then you can certainly go into your meeting armed with points 1 and 2.

I’m going to ask for 9% this year. Why? Well firstly, I think that the productivity I have achieved is greater than my current pay. I have also accomplished all the personal development tasks that my employer set at the start of the year. I value this as a fair 6% increase. Secondly, inflation is going to be 3% this year. I will not accept my hard work to be eroded away by inflation. I know that my company is charging more due to cost increases so, why shouldn’t I?

4. Time it right

Timing the right moment to ask for a raise can be awkward, I know.

You can get this right from the start by asking for a pay review every year as you start your new job otherwise it can become very difficult to work out when to ask. If your employer knows that you expect a pay review it won’t come as a surprise to them and they may have a considered response.

If you don’t have a structured pay review then you need to consider timing as it’s quite important. Let’s be honest, asking for a pay rise after a mistake or a poor quarter isn’t ideal. You want to ask when you are on a high and value is considered highest. Also, asking on a Monday morning is usually a bad time to ask as everyone hates Mondays. Ask on a Friday after lunch and you’ll notice it is much more relaxed.

Managers understand that you have a life too and if you play on their heartstrings a little then it can go a long way. Perhaps you are saving for a deposit or starting a family? Drop it into the conversation.

5. Just Ask

The amount of people who want a pay rise and the amount of people who actually ask is astonishing. Especially amongst millennials. According to research only 12% of people directly ask for a pay rise.

Guess what, you are valuable and your employer clearly wants you otherwise you’d be gone already. All you have to do is be honest and get what you want in life. If you are going in armed with the right data then you’ll be just fine. If they don’t accept and you consider yourself undervalued, time to move on. Loyalties are nothing in this world, especially in business. At least you’ll get the market rate – minimum!

P.S don’t forget to review them on Glassdoor.com! Save us all the wasted time.

 

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Money makes the world go round

Money makes the world go round

Welcome to Money Generation XYZ

This is the blog which will enable you to compound your wisdom at an annualised rate of 24%. I have studied the theory of making money since I was 13 and have put this theory into continual practice. This relentless pursuit in understanding how the financial markets work, how to analyze businesses and how to make money make more money allowed me to emerge from the financial fog richer in both knowledge and wealth.

I now want a platform to teach others

Why pursue money? One thing I have learned is that money really does make the world go round. We are absolutely controlled by finance. Central bankers don’t pull levers for no reason, they pull interest rate levers to make you spend or save, politicians pull fiscal levers to guide your financial decisions. This is not some grand conspiracy, we are all participating in a finely tuned machine and it is beneficial to society and the advancement of humanity (most of the time). Who wants to be at the mercy of the above? We need to take back control.

My desire is to be a free financial spirit

Making money has been a pursuit since childhood. It started when I began collecting coins. I managed to hijack collecting coins by purchasing a job lot of coins off eBay. I’m impatient like that. Who’s got time to wait for your parents to bring you a dollar from America anyway? I then moved onto selling multi-pack sweets individually on the playground. Fast forward twelve years – I am a successful Ebay and Amazon seller, a Finance Analyst and a side hustler.

Having a 9-5  job is rather like coin collecting – too slow

If I collect an average UK wage of £27,600 with a 2% pay rise each year and save 27% of that income after all expenses (my FY17 personal savings rate) I’ll be earning £60,000 and I’ll have saved circa £480,000 by the time I was 65. Sounds great, however that means I save £11,700 on average per year. Average UK house prices will have grown from £216,000 to £631,000 (assuming that house prices follow the 100 year annualized historical increase of 2.79%). Notice the key word here? Average.

Freddos will cost 65 pence!

£480,000 buys me 1,920,000 freddos today however in future I’ll only be able to purchase 738,461 freddos with the same amount. This is called the time value of money and this is a fundamental axiom of making money. It is why people who have worked all their life are still working. I’ll teach you all about it on our journey where I intend to hijack the art of collecting paychecks by earning more on the side through investing and money-making projects. I think you should too.

This blog needs to act as a sanity check

My fear is not failing to make enough money, it’s that I’ll never know when to stop. Afterall when is  enough, enough? We all admire Warren Buffet but he isn’t free. Warren Buffett has been shackled to the complex of money-making all of his life and I get the impression that he regrets the opportunity cost of his time with his family. Just read The Snowball: Warren Buffett and the Business of Life for more on that.

That’s where you come in. You can be my guide, you can tell me when enough is enough.

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