Career decisions
I have a client who is 21 years old. She is contemplating going to law school but will have to take out substantial student loans to do so. I have tried to enter senarios showing college loan receipts as special receipts and tuition as a special expense and loan payments as special expense. My objective is to test various assumptions about expenses and future earnings to see if going to law school is worth it. However, it is difficult to interpret the results. Does any one have any suggestions as to how to create the senarios and interpret the results?
Thanks
RSS
You are on the right track. Remember that you are setting up this case as an alternative to something else. So your "base" case is not going to law school and whatever that entails financially. That then shows her earnings now, assumed future earnings, and how that plays out in the consumption column through middle and old age.
Then, the law school profile will show the earnings for the next four years or whatever as very low level and her economy reliant on special receipts that then give way to special expenditures (with the proper interest calculated on the side and built into those listed expenditures). And presumably then you'd see the consumption column produce some higher numbers down the road as you indicate some higher earnings at some point in the future.
There's a lot of speculation here about the potential earnings and what not, but that's what you want to do. Don't forget that different jobs (lawyer, self-employed musician, etc.) have different retirement contributions. Perhaps a law firm would provide a 401(k) match and a solo-business venture would not? I don't know, but you'd want to try to map out the entire picture when comparing life A with life B.
Dan
I thought we had a case study on exactly this issue but I don't see it anywhere.
Best,
Dick Munroe
Hi
I faced a career decision recently, and incorporated ESplanner into a simple decision analysis matrix.
Basically, I tried to see what the expected value was in each career path.
So let's say you have 3 career paths. The idea is to "numberize" (if there's a word) each path. Each path will have an expected value(EV) in $.
I calculate the EV by multiplying its probability (this is subjective) with the expected payoff (that's where Esplanner comes in).
I run esplanner for each career path (actually, there's two forks in each career path. I put in a very favourable outcome and I put in an average outcome). Within the two forks, Esplanner helps me to obtain the average annual consumption (say from age 30-55). It's a proxy for living standard as I find it easier to explain my decision to my non-esplanner conversant other half.
Next, I combine probability & the expected payoff to arrive at the EV expected value). i.e. EV =probability of achieving that path x expected payoff (the average annual consumption)
I sum up the EVs for each of the 3 career paths; and take my decision from there. Ideally, choose the one with the highest EV. I keep it as simple as possible but I find that Esplanner helps because it gives you a good feel of how your annual consumption would be like given the possibilities. The other benefit I find was to backup the probabilities and to ask myself what sort of odds would it take to achieve a certain living standard/annual consumption, had I chose a certain career path. My other half does the sanity check on me.
Hope this helps. Perhaps someone else has a better way.