One thing I did not anticipate after getting married was how much insurance I was going to end up getting. I used to think life insurance and disability insurance was something “old” people worried about. Unfortunately for me, I guess I am now in that bucket and I am still in my 20s. I wanted to talk to you about a couple tips that might help you when you are shopping around for disability insurance. Until recently, I had never worked for an employer who provided disability insurance for their employees. This is probably why I had not heard of insurance before, however my grandfather is probably laughing in heaven and calling me a mule right now. After listening to a financial counsel talk show, the host seemed pretty adamant that listeners get the insurance or supplemental if they had it through an employer.

Why get disability insurance?

The statistics show that you are significantly more likely to become disabled than die prematurely. Pretty cut and dry. On the other hand this didn’t really register in my stubborn head until I was sitting at a light at East-West Connector and Atlanta Road. Apparently in Georgia, a red light does not necessarily mean red until after several seconds. Even then you should probably look to whatever side is opposite where you are turning in case some fool is on his iPhone. After seeing a near miss, I decided maybe this disability insurance thing is worth looking into. After all, Jury Duty taught me there are plenty of crazies out there.

Disability Plan Decisions?

Besides where to apply, the two most important details to look for are the periods (both for elimination and coverage) and the own-occ coverage.  The two most common elimination periods are going to be 90 day and 180 day policies.  All an elimination period means is the amount of time you have to pay out of pocket before disability insurance kicks in.  If I’m in a hospital getting countless surgeries but im home on day 90 then I am S-O-L in terms of my policy picking up any costs.  180 day plans are going to cost you less money but this means that you need to have a 6 month emergency fund ready in case you ever get disabled.  I believe 90 day is more reasonable since most people don’t have 6 month emergency funds (myself included BAH!). Coverage period is going to be something like 65 years old or 70 years old.  I really could care less which age it is, but make sure it’s one of those two so you’re not 55 disabled and up a creek.

Lastly make sure the coverage is “own-occ” or own occupation coverage.  This means that if you can’t perform your exact occupation then you are disabled.  Some plans do not have this and will then move to a percentage of occupation type thing.  For example, if I am disabled such that I can’t sit or stand, it would be pretty hard for me to be an analyst and ride a desk all day.  With own-occ coverage, I’d begin getting disability payments after my 90 day elimination period.  If you didn’t have own-occ, and now have what is called “any-occ” then you potentially may not get a check.  For example, lets say my main job is being a financial analyst however on the side I get paid to teach finance at Georgia Tech.  If I can’t perform my duties as a financial analyst but am not disabled enough such that I can still teach, my insurance company will not allow me to get the check.  Any-occ policies are going to be cheaper, but I do not think they are worth the risk.

Where did I apply?

I decided to apply via two methods and hoped to come to a conclusion on what gave me comfort after getting further down the road into the application process.  Some people go through an insurance agent.  Others go through these kayak.com equivalent sites like Zander insurance where the site shops several insurance companies at once.  I decided to do both.  After all when banks compete you win!  Okay well insurance companies and no you probably lose.  Maybe.

Pit falls to watch out for when signing up?

When shopping around, the biggest thing to watch out for when signing up is when the insurer will ask for a check with your application.  Agents will conveniently have you fill out a billing sheet which leads you to believe they just want to know how you will pay your premiums in the future.  I filled one out thinking this and said annual premiums.  Fortunately, I did not have a check on me or I may have given him one.  What the insurance agent is doing is masked under “contingent coverage.”  By giving the check then and assuming nothing comes back during underwriting, you are covered under insurance from the moment you give him or her the check.  In my opinion it is more the agent trying to get you locked up as a sale rather than trying to protect you.  For me I was willing to take the risk of a month delay in coverage.  However some people would enjoy the piece of mind of being covered immediately but this limits your ability to shop policies around.  Don’t let an agent tell you a check is required with the application!  It is only required if you want immediate coverage.

Concluding Thoughts

At the end of the day, these policies are going to run you $30-40 a month which is expensive for the amount of money they’re promising but I still think it is worth it.  Some will say that you can get quadruple bypass surgery and be recovered in under the amount of time it takes the elimination period to kick in.  This is true (i looked it up – can’t believe how little time it takes the sternum to heal).  Deciding to buy this is like deciding to buy stocks, it’s all about how much risk you are willing to take.  Best of luck and hope neither you nor I ever have to execute on a disability policy.

One of the biggest lessons I have learned in doing the MBA is that it gets harder to do one the longer your wait to start. The hardest part of the MBA is not the MBA itself. It is the time management process of juggling your schoolwork, career, family, and social life. Throw CPA, CFA, or some FINRA Series exam on top of that and you got yourself some stressful months ahead.

Why do an MBA?
Career Change – Many of my peers chose to do their MBA in order to launch into a new field. I recall one student who had a 20 year career in IT and was now wanting to go into clean energy. Usually you see engineers looking to move to finance or something radical. I think the most value a MBA has in this category of changing careers. It gives you enough times to get the course work and to network with others in the industry you are looking to get into.

Launch a start up – For those looking to start their own business or find partners to start something, the MBA is absolutely for you. Most MBA programs have elective courses geared towards start ups. Georgia Tech has three in particular: Venture Creation, E-commerce, and Entrepreneurial Finance. Most professors serve as great advisers for would be entrepreneurs as well. I have seen many willing to help students in any way they can whether it be themselves or through their network.

“Checking the box” – I put everyone looking for a raise and promotion in the box. I have yet to meet a MBA graduate who did not get at least a raise or a promotion if not both. In addition, those students wishing to look more employable to employers fit this bill. Hell every job description on indeed these days has “MBA desired” or “MBA preferred.” The MBA makes it that much easier to both get those initial interviews and change employers with ease.

But is the MBA actually worth it?
Day after day we see commodity prices, health care premiums, auto, homeowners, life and other insurance premiums keep going up. Colleges are no exception. My tuition alone starting in Fall 2009 was $727 per credit hour. It increased each year so far and is currently at $917 per credit hour. That is a 12.3% CAGR (compound annual growth rate).

Alice in Wonderland had it right: “I wonder if I’ve been changed in the night? Let me think. Was I the same when I got up this morning? I almost think I can remember feeling a little different. But if I’m not the same, the next question is ‘Who in the world am I?’ Ah, that’s the great puzzle!”

This got me thinking that for poor freshmen starting MBA that they’re going to be paying a lot more than I did. Time to run through the numbers to see what I spent on my MBA and to see if it is even worth it. Click here for my analysis on the MBA. When I finish, I will have spent over $51,062 on this degree. Someone pinch me! @$%^! Given the way tuition rates are going, you would think people would not flock to the degree. Many news articles out there will show you that MBA applications are up. Sitting in a cube and seeing the fantastic 9% unemployment numbers, many decide to protect themselves and be more employable by going for that M-B-A. Now it is time to see if it is even going to be worth it given these tuition rates.

I decided to do an IRR analysis which I am biased to because we use it in investment banking a good bit. Yes it is not perfect and no analysis ever is. Critics may argue that I was too conservative for leaving off anticipated bonus payments, but I wanted to be conservative and only looked at salary expectations. To run through an example, Peter Gibbons a student at Georgia Tech is graduating. He makes $65,000 at his current job doing TPS reports. After going through OCR (on campus recruiting, yea you learn lame acronyms in MBA), Peter gets his Post-MBA offer to make super TPS reports at a rival company but he gets a fat $20,000 raise and is now making $85,000. The GT career office shows that $85,000 is roughly the average salary for our graduates so this example has some real merit. The purchase consideration is equal to what I paid for school and those classmates who started with me. I assumed a 5% annual base increase which is not great but it not terrible neither. A 20% tax rate is reasonable based on some numbers I ran on a napkin using the 2011 Tax Table by the IRS. Since we make money almost forever, I did a terminal value of 12x. Feel free to change the assumptions and see what IRR results. In our example, Peter hit a 10% IRR. Not too bad given the returns on savings accounts these days. Given that tuition is going up each year, current freshmen are projected to finish at around a $65,000 cost. Plugging that in drops the IRR to 4%. Sure I’m leaving out bonuses, and it is probably higher. What the model suggests is that a MBA is a deal right now and is worth it. HOWEVER, if costs go too much further to where a tech MBA is $70k/80+ it starts to get to be pretty ridiculous.

Based on this, I am thankful to be wrapping up and graduating in May 2012. Screenshots of the example are shown below:

]]> http://www.davidhern.net/blog/mba/is-a-mba-worth-it/feed/ 0 http://www.davidhern.net/blog/mba/is-a-mba-worth-it/ http://feedproxy.google.com/~r/IStopForPennies/~3/MRIT9Bi2FN4/ http://www.davidhern.net/blog/quotes/quote-of-the-month-%e2%80%93-june-2011/#comments Wed, 01 Jun 2011 15:22:57 +0000 David http://www.davidhern.net/blog/?p=356

“I learned this…that if one advances confidently in the direction of his dreams and endeavors to live the life which he has imagined, he will meet a success unexpected in the common hours…If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundation under them.

~Henry Thoreau in his book Walden

At 5 pm on the Friday before Memorial Day, a group investment banker rookies from top MBA schools were requested to go to a conference room. The subject of the meeting was not given to the young recruits. The summoning itself meant that the partner in charge was effectively ordering them to cancel any and all Memorial Day plans. No apology would be made nor any formal statement that they would have to cancel their plans because a client’s engagement is going to need them for the weekend. Human courtesy does not exist in environments at Goldman Sachs or the other bulge brackets.

You think that’s bad? The partner who setup the meeting did not even show up until 10 p.m. Nothing required him to be late. He simply was performing a test of attitude. He told the group that the wait was a test to see if they had the right attitude. Wtf?! Before 10 pm (5 hours after the meeting time) three analysts took off assuming the partner bailed. I for sure would have bailed by 7 or 8. Those that left before 10 pm were fired immediately.

Failing to wait 5 hours for an impromptu meeting on a Friday evening before a holiday weekend is enough to have you fired according to Goldman Sachs. If you still think you want to head to Wall Street to work for the bulge brackets, then be ready to give up any sense of character or pride. You will have to subordinate yourself to your superiors’ unreasonable demands with NO questions asked.

Why is it that many people can breeze through multiple interviews or “super Saturdays” yet choke when it comes time to discuss compensation and salary? For many, instantly all the confidence of nailing the interview goes right out the window. Thoughts about the questioner trying to gleen some extra information out of you in order to offer you below what you want come to mind, causing more distributive conflict.

I have sat through dozens of interviews and if there is one thing I have learned about interviews it is that no two are the same. Some will have you come in twice to meet the whole team, others will screen you with a phone interview before bringing you in front of the hiring managers, and even others will put you through stress interviews or case interviews to see how you react and think. Nevertheless, nothing makes me twinge more than when a recruiter tries to pre-screen you with salary type questions or when I have wrapped up interviews and your direct contact tries to hone in on what you are making or what you are expecting to be offered so they can gain the upper hand.

In all four years of my undergraduate studies, I don’t think any of my classes discussed salary negotiation. If salary was discussed at all, it was discussed in a negative sense in that it was something to be avoided until the bitter end. To help you in your job prospects, I have compiled responses to typical salary questions asked by recruiters, HR managers, and hiring managers. The best thing you can do is go through these and prepare as much as possible. The more you practice in front of a mirror the easier this discussion is going to become.

Before delving into how to answer salary questions, I want to stress that in any negotiation you should negotiate over your interests and not over positions. In my experience, job negotiations where the hiring manager wanted to simply hammer out a salary and not think about the full package (ie: extra vacation, telecommute options, and others) ended up in a poor result that the employer usually was not happy with. Particularly, corporation can have “policies” that they cannot be flexible on, but this should not limit them from thinking outside the box to reach a result that will make them and you happy. Companies not willing to do this will enter into a very distributive discussion where I would bet that no one wins. Without further ado, below are some great responses that I have had successful experiences using in the past.

What salary do you want? What salary are you looking for? What is it going to take to get you on board? What salary do you have in mind?
-I’m sure you have a figure in mind. What have you budgeted for the position?
This quickly turns the question around on them and makes it sound like another business transacton.

-Let’s determine if I’m what you need, and if your company is what I am looking for. Could we discuss salary a little later?

-I’m sure we can come to a salary agreement if we both agree that I am the right person for this job. If possible, I would like to agree to talk about the salary later.
The last two imply that you are more concerned with finding a right match for the both of you and that you are not comfortable discussing at this moment in time.

What are you making now? What is your current salary? What are your past earnings? What did you make in your last position?

- Salary won’t be a problem. But, I am not exactly sure what the job is, so maybe we can talk more about that. I’m flexible and I am sure that when we come to some agreement on the job, we can work out the salary.

- I am compensated well right now, and I have worked hard for it. But, I would hesitate to tell you what it is, because I am concerned it will put you off. I know that salary will not be a problem. I am a fair person, and I am sure you are too. I know we will come to an agreement.

- I’m being paid very well and I believe I am worth it. But, I am very interested in your company, and I am willing to make an investment in this. As far as I’m concerned, salary won’t be a problem.

Why?

- Well, if what I earned was higher than what you wanted to pay, you might think that I’m overqualified. If it’s under, you might think I’m underqualified. I would prefer to be judged on my ability to do the job. What did you have in mind?

What salary are you worth?

- An employee’s worth is measured by his or her contribution to an employer. I expect to contribute and to be paid a salary commensurate with that contribution. I know you will be fair. Otherwise, I would not have applied to your company.

- Once hired, my first priority is to do the job I’m being paid to do. If I perform well, I would expect to advance accordingly. However, money is not foremost in my mind. Too much concern about the paycheck can lead to a poor attitude and result in a poor job. As long as my focus is doing the best job possible, I doubt will you have anything to worry about.

What would you like to be earning (two, five, or ten) years from now?

- At any point in my career, I’d like my salary to keep pace with inflation and be competitive with what similar positions pay.

- However, I don’t see myself as an “average” employee. I always strive for excellence and never settle for anything less than “above average.” So logically, my income should reflect that.

- If a company earns a return, I would expect the higher the rate of return the more it should invest in its’ people. If I’m not performing at anytime, I should not be here. I have no illusions about employment as a value for value relationship.

For additional answers to the questions above and for supplemental question/answer salary items please click here for a free acrobat file with expanded items.

“And thou shalt take no gift; for a gift blindeth them that have sight and perverteth the words of the righteous.”

Exodus 23:8

It is official! President Obama signed the 1099 repeal on April 14th. The health care reform law that was passed some time ago had a buried mandate requiring all businesses to begin doing 1099-MISC forms for ANYONE making over $600. You might say that they were doing this already. Unfortunately you would be wrong. Previously, there was an exemption for corporations that you paid. Small businesses did have to file Form 1099-MISC for any contract labor by a person or proprietorship who you paid to do work, but corporations were exempt.

For example, the health care reform law was going to make it so Joe the Plumber would have to 1099-MISC Home Depot if he bought over $600 worth of materials. Also, this would mean my tax business would have to 1099 a software company who provides my tax software if I spent over $600 with them. As another example, my sister’s faux company would have to 1099 Sherwin-Williams if she purchased over $600 of paint from them. Talk about a compliance nightmare. This was going to be a pretty large burden on small businesses, and I am glad it was repealed.

However, the win on 1099 repeal is short lived because another development has started in this same arena. Senators have introduced a bill to mandate employers e-file W-2 forms for their employees. Currently, only employers with >250 employees have to e-file the forms. Everyone else is simply encourage to e-file the forms due to the government’s low cost to process these compared to paper forms. I have mixed feelings about this. One, I think it is great that it would save us taxpayers money because the government would be more efficient. Two, it is pretty easy to e-file W-2 forms thanks to vendors like Wage Filing and Track1099. However, I do see it being a problem for very small companies with 1-20 employees who may not want to e-file them. Unfortunately, the senators’ proposal only provides an exemption for small businesses with 5 employees or less. I will keep you

“Everything should be made as simple as possible, but not simpler.” Albert Einstein

Sometimes in the path to paying off debt I need something to give me a boost to keep my motivation up. While I am making in roads on paying off my student loans, seeing such a high balance can get me down.

Recently, I read the Wall Street Journal and came across a great article, Families Slice Debt to Lowest in 6 Years. American families as a whole are paying off their debt and cutting their budgets to the bone. As you can see in the picture above, household debt in the US has fallen to approximately 116% of disposable income. At a first glance this appears to be negative news because our debt is still higher than what we make, but in contrast to the 130% peak in 2007 it is fantastic news. Thousands of families are finally sick and tired of being sick and tired. Not only are people boosting the portion of their income that goes to paying down debt, but also they are increasing their personal savings. In 2010, the personal savings rate was around 5.8% up from a mere 1.4% in 2005. We have not seen people save this much since the 1990s when the internet was synonymous with AOL’s “You’ve got Mail!” I am glad to see people’s finances getting better and hope this trend continues. I have included a chart below showing this positive trend.

Update: I hit a major milestone myself this week and have successfully paid off all of our unsubsidized loans we got because of the MBA program. Unsubsidized loans from the Direct Loan program carry a 6.8% interest rate which starts to accrue immediately. You are not required to make any payments while you are in school, but they are still hitting you with the interest. I am really happy because I have had these types loans since August 2009 and now I have no more interest accruing. $21,124.58 of subsidized loans remaining until debt free. Subsidized loans don’t accrue interest or require payments so they are an interest free loan until you graduate. Looks like our goal of paying these off before graduation is going to come to fruition.

“Pay every debt, as if God wrote the bill.” Ralph Waldo Emerson