Not Rich Yet | Managing higher incomes

CAT | Educate yourself

One big question that many people wrestle with is how much tuition and school loans they can afford to take on.

So I did a quick analysis to understand what a maximum reasonable amount of school loan a student could take on and still make ends meet.


My analysis calculates the maximum affordable tuition or total school costs given a post-graduation income and makes the following assumptions:

  • That all tuition and school costs are financed via loans
  • That schools loans run for 10 years at a 6% interest rate
  • That the student will be single and pay taxes in NY
  • That post-graduation the student will spend a minimum of either $1500 or 40% of his or her gross income on living expenses including food, mortgage, rent or car payments etc
  • That of the excess income – that what is left after taxes and living expenses – up to 75% can be used to pay-off school loans, the remainder is a safety buffer and for retirement savings


Given those assumptions, the total affordable tuition or school loans amount roughly equals the post-graduate income.

That means if you think you will make an annual gross income of $60k after graduating from college, you can afford to take out school loans of up to $64k.  Similarly, a salary of $100k would support school loans of about $106k, and an income of $150k loans worth $160k.

If your income would be below $35k per annum, your affordable school loans drop quickly, e.g.  for an income of $30k you could only afford loans worth $11k.

This same math roughly holds true for both undergrad and grad programs.

What do you think? Share this with someone who is thinking about going to college or grad school!

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Going to school – under-grad or grad – is tough these days. Many graduates are hurting to find jobs while tuition rates are going through the roof. But as someone for whom education payed off, I often get asked for advice by the younger generation among friends and family.

Here are my three pieces of advice:

  • Make sure you will enjoy it
  • Make sure you are talented and will excel
  • Make sure it will put you on a path you will be happy with both financially and as a person

Enjoy it

In order for pursuing a specific program or degree to lead to success, you typically need to do well in the program. One huge prerequisite for doing well at something is that you need to enjoy doing it. If you can’t stand the sight of blood, becoming a doctor is not such a hot choice. If you don’t like doing math, then studying accounting is not the route to success for you either.


Next, you should make sure you are actually good at what you want to do. You could enjoying singing tremendously, but if you can’t hold a tune to save your life – see me or most American Idol contestants – you will not do well as an opera singer. You should be better at  your chosen path than most or all of your friends. You should have an undeniable knack for it.

Right path

Finally, and most importantly you need to make sure that the degree you are pursuing will lead you on a path that you will be happy with.

Financial happiness

There are many degrees and programs that put you on track for a career that will return your investment and will give you a decent income.

There are many other degrees that will not pay off and may very well lead to an income under what you expect to earn. For example, law school tuition plus living expenses will cost up to $150k in total while many young lawyers make only $45-60k – try to make that math work.

So do some serious research on what careers you could pursue with a given degree, and what the expected income with that degree would be. Compare that to the life style would would want to live to be financially happy. And please be realistic. Some young lawyers earn $180k per year – do you think you are good enough to be one of the lucky few? If not, where does that leave you?

Also keep in mind the quality of program you can get into. An MBA from Harvard has a very different earning potential than an MBA from a no-name community college. Often the lower tier schools are not worth the money – you need to compare tuition and living expense rates with typical graduate salaries.

I was convinced in high school that I wanted to be an archaeologist. That was until I figured out what they earn :) . Then I chose something else I was good at and that led to an income that could support a family.

Happiness as a person

Financial happiness is not everything however. You should be happy living the career implied by your degree day in and out. If you have a serious social bent and want to do good to everyone you know, becoming a tax collector is probably not the right path. If you love the outdoors and hate being stuck in an office, studying to be an accountant doesn’t make sense.

These are not reasons to go to school

Finally some things that do NOT qualify as reasons to study for a particular program

  • My friends are doing this
  • But it sounds cool
  • I don’t know what else to do

Final words

In the end, you just need to think through what you really want to do and imagine yourself as a graduate. Is that the life you want to live? Don’t make a seat of the pants decision that you will regret for the rest of your life.

And please don’t study psychology if you don’t intend to enter that field.  Psychology is interpreted by most employers as “I had no idea what to study so I choose psych”.

Image by Ed Yourdon

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Today I am kicking-off a multi-post series on Angel Investing. This is an interesting avenue for high income individuals with tolerance for risk.

The topics I intend to cover in this series are:

  • What is angel investing?
  • How angel investing works
  • What the requirements for angel investing are
  • What to look out for as an angel investor
  • How to become an angel investor

Angel investing – what is it?

In 1998, Andy Bechtolsheim, a successful entrepreneur and co-founder of Sun Microsystems, was approached by the founders of Google. Larry Page and Serge Brin pitched their idea to Andy, and he consequently wrote them a $100,000 check as a seed investment for their brand new idea. Fast forward a decade, and Andy’s investment in Google is worth more than $1.5B.

Angel investing is a high-stakes, high-risk form of investing by one or a few investors into promising ventures. Typically these investors are expected to contribute more than just money, but also facilitate contacts, provide expert knowledge and generally be helpful. In return, they are allowed to invest at “basement” level, and can achieve amazing returns – if unlikely as spectacular as those of Andy Bechtlolsheim – if the venture does well.

Typically, such investments are equity purchases (stock or stock options) or convertible debt (loans that convert to stocks). Pure debt deals are rare as they don’t allow the investor to profit greatly if the company does well.

Typical investments

Most importantly, angel investors typically invest in companies that will have some sort of “exit” or liquidity event. Internet start-ups or biotech companies will typically have an IPO or be acquired by another company if they succeed. Such an event allows the investor to convert his or her initial stake into cash or tradeable shares. Before the event, the investors shares were illiquid since the company was not publicly listed and tradeable.  An angel investment in a company that never intends to have a liquidity event is a moot point – why sink money in a deal that you can never sell?

Companies most attractive to investors since they will likely follow the route above typically follow the profile

  • Technology or biotech focus
  • Own strong intellectual property such as patents that will afford them a defensible advantage
  • Are not “life-style” businesses but instead highly scaleable businesses that can drive tremendous revenue and profit with a small base of employees
  • Organized as C-Corp or more rarely as LLC
  • Are for-profit

What this means is that businesses that do not meet the criteria above are unlikely to be attractive to angel investors. Restaurants, bars, ice cream shops, consulting companies, advertising agencies and other businesses that rely on people instead intellectual property are unlikely to attract angel investors.

The risk

Angel investing is risky. One angel investor I know mentioned that only a handful of the over 50 investments he made were doing well. In fact the risk is at multiple levels

  • First, the company has to do well overall and turn an idea into a roaring business
  • Next, most companies need to change their business model a couple of times in their life. During such changes, esp. if they involve near-death experiences for the company, new investors may force unfavorable terms onto the company, often “cramming down” older investors. What this means as an angel investor is that while the company may be doing well overall, your personal investment could be doing horribly
  • Finally, you need to have a liquidity event that is successful. Many a dot-com start-up was bought up in the hey day giving their angel investors huge returns on paper – e.g. through stock swaps – only to find after the 12 month waiting period that the buyer negotiated that the stock market tanked and their shares are worthless

For this reason, the US government actually requires angel investors to meet certain requirements. The government wants to avoid that innocent and inexperienced investors get suckered into such deals, so they require investors to have a minimum networth or income (to be discussed in detail later).

Given the risk discussed above, most investors I know only invest a small percentage of their portfolio in angel deals, often 5% or less.

My experience

As a disclaimer, I am not an active angel investor myself but have received angel investments from others as an entrepreneur. I have negotiated over 15 such investments and have assisted investors in their due diligence in other transactions.


In my next post in this series I will explain how the nuts and bolts of angel investing work.

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Evolution of income

A while ago I decided to understand how our income evolved over time. The graph below summarizes a quick retrospective of how our pre-tax income evolved over the past decade. This captures life before and after grad school for both my wife and I.

How to read this chart

Blue and red show his and her histories. I am not quite ready to open the kimono fully, so I decided to index our income. So in 2000 we earned an income of x. Every subsequent year is shown as a multiple of x. For example, in 2010 we expect to earn more than 7 times what we earned in 2000.


Funny enough, before I went to grad school, I was –  in my eyes –  making a ton of money, esp. compared to my peers who went to undergrad with me.  But as you can see, grad school and then finding the right job, had a tremendous impact on our income.

You can see a dip in income while I went to grad school, but while the Mrs. went to grad school, my income was growing so fast, her old income was hardly missed. But when she graduated, we really hit the accelerator pedal.

My second job was very fulfilling and paid decent, but income plateaued. My third job however has a nice growth curve to it, and I have experienced steady pay jumps annually.

The right kind of education pays

Neither my wife or I could have gotten our current jobs without going to grad school. I will show the math in a later post, but we both have earned our tuition investment back with ease.

That said, we both went to good schools, picked degrees that meshed with our interest, abilities AND that had a clear path to a career, and excelled in our careers.

Not every investment in education pays – I will outline they why and how in a later post.

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I don’t – in fact, I have real trouble hiding my feeling like disgust, joy, worry, annoyance etc.

If I were to play poker (I don’t for this very reason) – you would be able to read my hand by looking at my face. I would have a huge grin with a good hand, anda look of concern with a bad one.

This prevents me from playing poker but also hurts me in face to face negotiations either professionally or when it comes to my personal affairs.

For example, if I want to play hardball with a vendor, plumber, cable company etc., I am much better suited to do this over the phone. Luckily for personal finances issues most such conversations happen over the phone anyway.

How about you – do you have a poker face? If yes, how do you use it?

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