A little over six years ago, I joined a small nonprofit organization that was helping hundreds of families per year. Today, I work for a completely different organization, but my employer has stayed the same.
Over the past six years, the organization has changed rapidly – so much so that I often say it’s a completely different organization.
When I joined the organization, there were four other employees, two of whom were part-time (for a total of 4 full-time equivalents [FTEs] for those of you who speak that language). We’ve since grown the organization to a team of 40 FTEs.
As with any fast-growing company or organization, my role has expanded. I now oversee several functions and have been given a great deal of responsibility. Suffice it to say that the nonprofit rat race has paid off for me.
As the organization and my responsibilities have grown, so has the pressure to perform. While I’ve been very successful in my job – so much so to be promoted three times – I have always felt fortunate or lucky.
I often attribute my success to good timing. “I joined the organization at a great time,” I say. Or, “we were lucky to do this,” even though I was directly responsible for doing it.
I now understand that in telling myself these things, I was falling victim to imposter syndrome. For those unfamiliar with the term, it’s:
a psychological term referring to a pattern of behavior where people doubt their accomplishments and have a persistent, often internalized fear of being exposed as a fraud.
One of the main reasons that I succumb to the imposter syndrome is feeling like I don’t have the necessary formal education. While I have a four-year degree and completed the coursework for a graduate degree, neither were in the functions that I oversee now.
I had this deep feeling of insecurity that I could not be successful without a related degree. This led me to consider pursuing getting a Master of Business Administration (MBA) a few years ago. Many of my peers in similar nonprofits have either an MBA or MPA, so maybe it was time for me to do the same.
Figuring out whether I should pursue an MBA was actually one of my annual goals (or new years resolution, if you prefer that term). As the ball dropped a few years ago to ring in the new year on January 1, I told myself that I would use the entire year to decide whether or not to go back to school to get an MBA.
Usually, my goals are more focused around physical or financial health (like to increase our savings rate to 57%). But I added this goal to that year because it was that important. If there was ever a time that I should get an MBA, it was early on in my career, so I made this decision a priority.
MBA degrees are seen by many as a necessary requirement for executives across several industries. Most see it as an investment in your career, where the ROI is always worth it. By investing in yourself, they say, and developing your skillsets (including management experience), you can expedite your career growth and increase your income.
Most MBA programs even publish their graduates’ average salaries. If there’s any program that is highly focused on the rate of return, it is and should be the MBA.
Universities with MBA programs will market their program in such a way that makes it seem like a sound business decision. Spend time and money now for future rewards. Their numbers all but guarantee it.
Despite what they say, deciding to get an MBA is a highly personal decision. It’s not ALWAYS a sound business decision, with a strong ROI.
I ultimately decided to skip the MBA and after some recent reflection, I realized that it was in large part the pursuit of financial independence (even though Jess and I hadn’t fully committed to FI yet) that gave me the confidence to skip the MBA.
Reasons to Skip the MBA
If you are considering an MBA as a way to reach financial independence, I hope the reasons I decided to skip the MBA will be helpful for you. To be clear, I’m not suggesting that there isn’t any value in the curriculum or that the skills learned are not valuable. Instead, I’m arguing that an MBA is not necessary nor always the best financial decision for you.
1. Education is Evolving
I’m a continual learner. I have a curiosity to understand how things work and how to make things more efficient. And most importantly, I did not stop learning when I finished with my formal education.
I don’t think anyone has ever stopped learning once they walked across the stage to receive their diploma. That would be absurd.
Yet, companies and nonprofit organizations make hiring decisions based on this very assumption every day. HR managers are regularly screening applicants against the list of requirements listed on the job posting, with formal education or degrees often listed first.
What most recruiters have failed to adapt to is the way in which people understand new information and develop new skillsets.
The Internet Has Changed How We Learn
Over the past 30-ish years, the internet has made information more accessible to a large population of the world, thereby transforming the way in which people learn.
Our World in Data demonstrates the growth of internet users from 1990 to 2016 with the following chart:
This chart not only demonstrates that there has been rapid growth in total internet users over the past 15 years. With total internet users at approximately 3.5 billion, it also means that nearly half of the world’s population is using the internet (with the 2016 estimates around 7.4 billion).
As more and more people have used the internet, there are more people sharing information and knowledge, making learning new skills and ideas more accessible.
Just think of the last time you went to youtube to learn a new skill. For me, it was just 7 days ago when I was trying to learn a potential new side business (as you may recall, we’re exploring side business ideas as part of our plan to financial independence), but I’ve also used it for DIY projects, how to dress appropriately for various work events, and the list goes on and on.
But it’s not just the sheer volume of information that has allowed the internet to transform education. The internet has several inherent advantages over traditional education, including but not limited to:
- The internet better caters to the several ways in which people learn (visual, logical, aural, verbal, social, etc.).
- On the internet, the learner can better customize the pace with which they want to learn. Some learn much faster or slower than others. With the ability to move through videos or modules in an online course, for example, the internet allows learners of all paces to stay engaged.
- The internet also better caters to the diverse attention spans with which people learn, allowing users to stop and re-start when the attention span wanes. This is important with the number of ADHD diagnoses growing 42% over an 8 year period.
- It allows for a larger audience. While traditional education at a University has a limited market of those who can be there in person, typically with a particular age demographic (sure, University’s online education programs extend this a little bit), the internet has a larger audience/market.
- It’s more cost-effective to deliver information. While Universities have the costs of maintaining brick and mortar institutions as well as the administration costs, an individual can create and prepare online courses or share information with very little overhead costs.
How I Can Learn the Same Knowledge/Skills without the Diploma
It’s clear that I think higher education has many obstacles to overcome in order to adapt to the changing landscape. This carried over to a personal level.
If I believe that education is evolving with the rise of technology, why would I continue with an archaic way of learning material?
After asking myself this question, I decided to take a practical approach.
I started to list out what I could expect to learn from an MBA program, and then determine if and how I could learn the same information. Here’s what I came up with:
Things I would learn from an MBA:
- Financial Management
- Business/Organizational knowledge
- Leadership skills
- Management approaches
These were the five core areas on which the degree would focus. Seeing this list gave me greater confidence that I could learn these skills without the formal education.
My Personal MBA Curriculum
Here are several of the ways that I devised to expand my skillset and knowledge without enrolling in an MBA program:
- Read Business and Nonprofit Management Books: I may not have a curated reading list from people in this industry, but I’ve read a number of books that teach management skills, financial management, and much more.
- Learn by Doing: This is one of the best ways that I learn new things. With my current role growing and evolving, I am always tackling new projects. This provides a number of opportunities to learn new things. Over the past few years, I’ve created new financial models, overseen the growth of an organization from 18 to 40, demonstrated leadership to preserve our organizational culture, and so much more.
- Learn more about Digital Marketing: Another side benefit of running this blog is that I’ve been able to learn more about digital marketing, including social and email marketing as well as SEO. I’m confident that these are applicable skills that have and will provide a lot of value for me in the future.
- Learn from Others / Increase Networking Efforts: I’ve invested about 2-5 hours per month in a few professional groups in Boston to broaden my network. I now regularly meet and collaborate with my peers in other nonprofit organizations. The amount of information you can learn in a 30-minute conversation far exceeds that which you can learn on your own. Another nice benefit of these groups is that I’m working with people who are in management in other organizations. As an MBA student, you would primarily be networking with individuals trying to land their first management job.
By opting for a self-guided education program, I am able to better control the information that I learn. Instead of learning theories, frameworks, or information that I won’t ever use, I can identify a gap in knowledge and then go and learn it.
This first reason for skipping the MBA was to recognize that there’s more than one way to learn information to be successful in my career. In a way, I’m betting on myself to be able to learn as much the MBA graduates so that if I ever do need to switch employers, I’ll be equipped to do so.
2. Career Advancement isn’t My Primary Concern
Another big reason that I am comfortable betting on myself as it relates to learning the necessary information is that I’m no longer primarily concerned with career advancement.
This is not to say that I’m not ambitious or do not want to grow, or do not want to increase my income. Of course, I want to do all of these things.
But if my goal were to by the COO or CFO of another large organization, my stance on the MBA might be different. Organizations of this size tend to require a formal education, not because of competency or skill, but because of appearance.
Nonprofits with large operating budgets appeal to large corporations and/or the greater public. As such, having someone with the requisite education is part of the consideration for the role. Again, not because of the skillset required, but because the organization has to project a certain level of confidence.
Thankfully for me, I’m part of the senior leadership of my organization. I’ve grown with my organization and have built up a level of trust with the CEO and Board. This won’t change anytime in the future.
I Truly Enjoy My Current Job
And most importantly, I enjoy what I do.
This is rare, I know, but the types of projects and the challenges that my work presents me are truly enjoyable.
While it’s easy to get caught up in career advancement, fame, and looking to have a particular position, I don’t want any of that.
I want to continue to grow and learn. I want to be challenged and have my mind stimulated. I want to continue to do what I am doing now.
I Earn Enough
I not only enjoy what I do, but I earn a good living. I make enough.
I am on the path to financial independence. You would think that I would want to expedite this as much as possible by maximizing my earning potential at any cost.
But that would be missing the point. The point of financial independence isn’t just about the freedom that comes with it. It’s about the freedom to choose the life that you want to live.
I am very fortunate to enjoy what I do and make a good income. So much so that we were able to save over half of our income last year.
This level of satisfaction from my job may not last forever. This is why we are saving so aggressively – to buy future flexibility. For the time being, I don’t feel the need to achieve more than I already have as it relates to my career.
I Have Different Goals
While career advancement is no longer my primary objective, I do have other ambitions. I’m also the type of person who can only focus on a couple of things at once.
For the past few years, my focus was on growing my career. Now that I feel pretty good about where I’m at now, I want to pursue other side hustle ideas.
This includes growing this blog, but also investing in real estate and possibly even experimenting with other side hustles.
I have many aspirations and by mentally letting go of the pressure to advance in my career, it creates enough space for me to pursue these other projects.
It’s no coincidence that while my W2 income will help with the wealth accumulation part of our plan to financial independence. These side projects will help with cash flow optimization. They will help us gain more freedom in case we want to travel more or do other things that a 9-to-5 job might not allow.
3. The Costs Don’t Make Sense for Me
The last reason why the MBA is not the best option for me is all about the cost of getting an MBA. I’m talking both about the high tuition cost as well as the opportunity cost.
As I mentioned earlier, MBA programs are marketed as a great investment. Invest in yourself and your income will increase tremendously.
A More Accurate Breakeven Calculation
It’s true that there is data out there that suggests a huge increase between pre-MBA and post-MBA earnings, with some stating a break-even point of under five years.
But their definition of breaking even is just calculating when you would recoup the high tuition costs for your MBA program. In other words, with the increase in salary, how many years would it take you to recoup the upfront cost for your education.
The irony is that very few people include the opportunity cost, a concept that any MBA grad would understand, when calculating the breakeven point of this business degree.
It’s important to factor in which investment opportunity and associated returns you are missing out on by allocating resources toward the MBA.
My Breakeven Point for an MBA
As I was sorting through my decision, I decided to model out the impact on my finances. I decided to compare three scenarios, keeping everything else the same.
- MBA – What would the impact on my net worth be if I paid for my education with my current cash flow, with the promise of a higher W2 income after I graduated.
- No MBA, Real Estate – Instead of investing in myself with an MBA, would the impact on my net worth be if I started investing in real estate, using only the same funds that would be allocated toward the MBA.
- No MBA, Stock Market – Similar to the 2nd scenario, but investing in the stock market instead of real estate. Again, only looking at the impact on the net worth for the same funds that would be allocated toward the MBA.
I simplified the three scenarios as much as possible with the following assumptions to understand how long it would truly take to break even.
- Estimated $130,000 Average Cost for my MBA: Because I live in Boston, with access to a handful of the top 50 business schools, tuition is higher than the national average. I estimated the average cost of an MBA in Boston at $130,000 for the degree.
- $30,000 Increase in post-MBA Earnings: Based on my current earnings and the research on average starting salaries for MBA graduates, I can reasonably expect to receive a $30,000 increase in compensation after graduation. If this number is too aggressive, it would only push the breakeven date even further into the future.
- 3 Years to Complete the MBA: Because I would not want to give up my current job, if I were to do the MBA, I would do it part-time over the course of approximately 3 years. This means that in the MBA scenario below, I split the estimated $130,000 in MBA costs evenly over the first 3 years.
- 7% Cash-on-Cash Real Estate Return: For the “No MBA, Real Estate” scenario, I assumed that I could be 3 rental properties with the annual cost of the MBA ($43,333) and earn a cash-on-cash return of 7%. I believe this is a very conservative return, especially considering not including equity, tax savings, etc.
- 5% Investment Returns: For the “No MBA, Stock Market” scenario, I assumed that I could receive 5% investment returns after inflation. This is based off average historical returns.
What I found out after modeling out the three scenarios was that my breakeven point was approximately 16 years! See the below chart for a visual of the three scenarios.
In other words, it would take me 16 years from starting my MBA to pay for itself when factoring in the opportunity costs. In case you are someone who would prefer to see it in a chart format, I’ve also included that here:
|Year||MBA||No MBA, Real Estate||No MBA, Stock Market|
Getting an MBA just doesn’t make sense.
This would mean that committing to an MBA would lock me into 13 more years of work just to make it worth it (after 3 years of school). Not only is 13 years a long time frame to be locked into something, but this would also mean that I would be forced to work 5-6 years past our anticipated FI date.
It’s also important to note that the alternate scenarios do not include any additional income from side businesses. If I were pursuing an MBA, I would have not the time to create a side-business in years 1 to 3. But I will be experimenting with other side businesses over the next couple of years. I excluded it both because there’s no guarantee for income and for simplicity. I think the chart above already makes the point.
Based on where I am with my career, my enjoyment with my current job, how I can learn new skills and additional knowledge, my aspirations to explore other side businesses, and the time commitment to make an MBA financially worth it, pursuing an MBA just does not make sense for me.
This is not to say that it will be the same for all individuals considering an MBA. My decision is weighted one way because of my current job, financial situation, and other aspirations. If your ideal life is doing something that requires an MBA then it might be worth it to you – just remember to calculate your costs with the opportunity costs so that you can make an informed decision.
This article is fantastic!
I’ve got an article scheduled for next week called “How Quitting College Opened Up My Future” that talks a little bit about what you touched on. This article focuses on getting an MBA, but I go through similar logic in questioning the value of any college degree.
There is a part of this discussion that depends on what field we are talking about. I’ll be curious to hear your take on my article, as I’m writing from the perspective of a web developer. I included a link to your article as I think they compliment each other nicely.
In my case, as a web developer, I feel I wouldn’t have gotten to the same place I am now if I received a college degree. In either case, it is valuable to think about what is worth the cost and what formal education is going to provide us vs. real-world experience.
Thanks for sharing!
Thanks, Chris. Yes, I agree with you. While my focus was on my situation (with considering the MBA), I think education is evolving in a more general sense. I imagine developer jobs are a good example of how the skills matter more than the diploma. I have a good friend that completed Launch Academy and got a high paying job shortly after completing it. I’ll be on the lookout for your upcoming article. Thanks for stopping by.
Thanks Corey for writing such a great article. Your “breakeven point of MBA” is a really powerful visualization. I love it!
I totally agree that an MBA. I will go further by saying that any UBER expensive education is not required to land a meaningful & successful career. People should not have to pay an awful lot of money to get the tools/systems they need to build their “stack of skills” to land a good job. (I will push this even further by saying that most education programs are lacking some fundamentals when it come to life purpose, person finance & relationship 101 but this would be for another comment :D)
I grew up in France in the 80s. I followed the public education (which is pretty much FREE in France). After high school I attempted to quality to join some of France’s top school but failed (unfortunately?). So I kept following the public route which let me get a Master degree in Computer Science. This degree opened the door to my first technology company in France. That company got later acquired by a big Tech corporation in the Silicon Valley which open opportunity for me to get relocated in Silicon Valley in the best economical year ever: 2008! My US job offer started with a 6 figures salary (which was a 3X increase from what I was getting in France). After surviving multiple round of layoffs, getting a few promotions and three job titles,I was able to save enough money and not succumbing to lifestyle inflation which lead me to quit the rate race in 2018. In between I met my wife and we stumble upon Financial Freedom together. We have embraced our common passion for travels by becoming slow travelers for life.
Timing (and luck) might have helped a bit. But I don’t felt that my education was a limiting factor in my career and life. It was more the things I did / learn outside of it. What do you think?
Note: When I learn that Jessica spent a lot of her time internationally and that both of you are working for non-profits I was not too surprise to see that you are both really passionate about living a purposeful and meaningful life. I think that if people would have the chance to travel more internationally in their younger years this might reconsider both value and culture they are getting expose to from their home country.
Wow, that’s a pretty long comment so I’ll stop here. Thanks again Corey for this article! Cheers!
Thanks Mr. Nomad for taking the time to read through this and the thoughtful comment. I agree that it’s not just an MBA, but that education, in general, is evolving and that experiential knowledge is much more important. It sounds like the degree was helpful at the beginning, which was the case for me, but instead it was more helpful to learn on the job that allowed you to progress. Thanks again for sharing!
Very in depth post on breaking down the numbers! Did you at any point consider getting a cheaper/online MBA? Sam (my wife) got her MBA in under a year for about $22k. We recouped those costs with increased income in about 6 months. Obviously results vary by industry… I didn’t see you mention if you are able to receive any tuition reimbursement from your employer, but that could also lighten the tuition burden.
John, thanks so much and that is a great consideration. I didn’t consider getting an online MBA or something similar, mostly because MBAs are a status symbol here in Boston. WHERE you went to school seems more important than having the degree itself. It would make it a much shorter break-even point for sure.
I also don’t qualify for tuition reimbursement, though I have in the past (when I worked in higher ed).
Hi, curious, isn’t it that the break-even is sometime at year 11.5-ish at 130k?
Since break-even is when u recover back all your costs expensed?
Year 16 is when you earn 2x of your investment of 130k. So after breaking even, at earning 130k, Year 16 is when you’d earn another 130k on top of covering your initial costs.
You are correct, the break-even is at 11.5 years to just cover the costs of the MBA. However, we’re looking at what the break-even point would be if we had invested the $130K either in the stock market or in real estate (instead of spending it – given that’s our actual scenario because we would have paid for the MBA in cash). Given that the money invested has the same amount of time to also grow, it takes about 16 years to break-even in that scenario.
Hope that helps,