Lifetime Costs (a thought experiment)

Work-Life Earnings for Full-Time Employees (in $ millions)

Professional Degree
$4.4
Doctoral Degree
$3.4
Master’s Degree
$2.5
Bachelor’s Degree
$2.1
Associate’s Degree
$1.6
Some College
$1.5
High School Graduate
$1.2
Some High School
$1.0
Average Lifetime Earnings—Different Levels of Education.Source: U.S. Census Bureau, Current Population Surveys, March 1998, 1999, and 2000.

You hear a lot these days about the value of a higher education degree. For instance, the above data which I found through Earnmydegree.com illustrates quite nicely how ON AVERAGE the higher degree you have, the more money you will make over the course of your lifetime.

Now, I don’t know if the US Census Bureau factored in the time it would take to earn the higher degrees and subtracted the years from this or not, but I have to imagine that since I’ve only worked a little less than two years since finishing my Ph.D.  that I still have my full $3.4 million coming to me. Right? 😉

That seems like so much money, and yet it is really a finite amount.

First, we gotta give the government its share. With a lifetime earnings of $3.4 million – I’d find myself in the 33% tax bracket I’d wager. We’re now left with $2.27 million.

Well, let’s assume that one-half of it I spend just on the cost of “living” – like food, paying utilities, buying gadgets and clothes and furniture and life insurance premiums and presents for people. I’m estimating 1/2 because I don’t plan (after I get out of debt and into a “real” job to ever spend more than 50% of my income on myself.

Okay… so now after just the cost of living I have left to me… $1.135 million.

I’m going to be putting 10% of my take home salary (or $224,400) away for retirement (obviously earning interest!) – leaving me with $0.911 million.

Well, I’ll probably have to buy a house. And even though I don’t know where I will end up, there is a good possibility that it will be a major metropolis – so let’s just say this will cost me a cool $300k so now I’m left with $0.611 million.

However, all of this is based on the ASSUMPTION that I won’t have to finance my house. And frankly, I’m not sure that I would be willing to save up for a $300k house to pay with cash. (Then I would have to include rent into the equation… oh my…) If I take out a 30 year fixed mortgage at 5% on my $300k house with $50k down – it will actually end up costing me $474k for that house! Now I’m left with $0.437 million.

Now I’m thinking that I’ll probably end up buying a car every 8-10 years. For the sake of simplicity lets say that I buy one every 8 years and it costs me around $15k. From now and when I hope I won’t be driving anymore – I have 48 years of driving time. Or 6 cars. For a total of $90k on cars. Plus maintenance and insurance. And I’m sure I’ll end up spending more than $15k on a car. So let’s just round this up for good measure to $125k. Now I’m left with $0.312 million.

Another large chunk will be used for “emergency” expenses. The unexpected job loss. End of life care for my pets. Medical expenses that I may have. I’m guessing over the course of ones life we end up spending probably $100k on the unexpected. Thankfully it doesn’t happen all at once! Now I’m left with $0.212 million.

All of these expenses later, I’m beginning to see the stuff I enjoy: vacations! I plan on spending around $2,000 per year for vacationing. Multiply that by how long I plan to be on this earth and I’ve spent $100k to travel the world. And now I have $0.112 million.

Oh yes, I should probably include my debt in this calculation since it is part of the equation. At my current rate of repayment I’ll end up paying $15,843 on my credit card (including interest) and $20,881 on my student loan (these are based off of what I will need to pay on these FROM TODAY). That will total around $37k – leaving me with $0.075 million.

Whew… that’s right… after all is said and done I have a margin of around $75,000 to my name. For my hobbies, my crafts, and the “incidentals” – oh yes, and even raising a child! – I better keep on budget! $3,400,000 +/- 75,000 isn’t a very large margin of error!

 

(Obviously I know that all of these numbers are made up and completely speculative – no one is ever the “average”. But it is interesting to think about lifetime earnings and what that can buy us. I think if you take your salary and put into account what you want to acheive/buy over the course of your lifetime you may be surprised. For instance, if I take how much I’m allowing myself to “live on” – which is $1.135 million. If I divide that by 50 years (hopefully around as long as I have left on this earth) – I find that this gives me a salary of $22,700/year – or expenses of $1,891 per month. That isn’t a whole lot when you think about being a “grown up” or in the “prime” of your life. ALSO, doing this made me realize how much someone with that salary could actually afford for certain big ticket items. For instance, my original calculation had my house price at $400k. But I couldn’t do $400k and come out in the black, so I had to reduce my house price to $300k to make it work. While this may look NOTHING like my future life… it is a nice ballpark on what I truly can and cannot afford in the future… Can you achieve your lifetime goals with your expected lifetime income?)

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12 Responses to Lifetime Costs (a thought experiment)

  1. Jessie says:

    What a thoughtful post! With my bachelor’s degree I would fall in the $2.1 million… I wonder if it’s similar for Canadian vs. American degrees.

  2. Amanda says:

    It helps to have a second income (i.e. a spouse). But your little experiment shows how important it is as a single person to be aware of your finances as you have nothing to fall back on.

    • SS4BC says:

      Oh yeah, a second income would make a HUGE difference. I’m just not going to ASSUME that eventually I’ll have a husband. At this rate… pfff… who knows!

  3. eemusings says:

    Wow, even with my little Bachelor’s degree I’m going to make $2m in my life?

    It DOES sound like an enormous sum of money, but you did a great job breaking it all down. All that for a $75k margin is a real eyeopener!

    I guess you make more with a higher degree, but those degrees also cost more (unless you have them paid for by someone else) – do you think it evens out, or is it truly worth it to get a more advanced degree? In my field, I don’t think it would make much of a difference – media/publishing isn’t the most academic of industries. But maybe in business or science it would.

    • SS4BC says:

      Well, I have a Ph.D. in Chemistry, and thus I was paid to go to school (all chemists and biologists get paid a stipend + tuition expenses). So it was a win-win for me.

      Do I think it evens out? No. I think a higher education degree in most fields is better. Also, job opportunities (I think) are better. If looking at two applicants and trying to choose, I would always pick the one with the higher degree.

  4. Jessie says:

    Question – Are you still blogging about weight loss at all… I’ve started writing about my journey (which is going to be painful)… and would love to read about yours!

    • SS4BC says:

      Ugh… I’m trying to avoid it. But I’ve been thinking about it a lot in terms of what I want to do.

      I am thinking the new year will ring in with a motto of “1 lb per month” – where I’ll make my goal simply to lose just 1 lb per month through (surprise!) small steps.

      • Jessie says:

        hmm.. I kinda like that. I’ve been thinking I want to get in shape and lose some weight, I just haven’t come up with a plan yet.

  5. TMcImmy says:

    Very interesting numbers. The danger with medians of course is they can vary greatly amongst fields. My friend who has a Master’s in chemistry makes considerably more than my friend with a Master’s in Social Work.

    *In general* education is financially “worth it”, although it does typically involve delayed fulfillment and taking on extra debt. In some ways it’s a gamble; obviously it doesn’t pay off for someone who isn’t able to work into their 60s for various reasons, or chooses to change careers. There’s also mounting evidence that the value of a Bachelors and Masters degree is falling. We’ve nearly reached the point in society where it’s not worth going to a 4 year college to pursue art or an english or anthropology major, assuming financial gain is the big motivator (and that’s a huge assumption)! There’s also some mounting evidence that a masters in some fields doesn’t really pay in the long run if it doesn’t produce more tangential job satisfaction. Many higher level positions also require more responsibilities, so the higher salary is sometimes a wash in terms of quality of life.

    Going through your numbers, 2,000 a year for vacations may not end up being practical. A big part will likely be dependent on if you end up with a spouse and child(ren) and your spouse’s financial situation. The math for homebuying becomes much more practical when split two ways.

    • SS4BC says:

      Re: vacations
      you’re right, it very well not end up being practical. when I made up the initial mock up of this post I factored for $4k a year. this was unfortunately too large. i have a feeling a compromise may be met at smaller vacations one year (like to a continently US local to visit family or whatever) and a larger vacation the next year – to average out to $6-8k for the two years. obviously kids and a spouse change both the cost, and the contributed money. but i don’t have either of those things so i can only plan for myself

      Re: house
      The house is a HUGE variable because it can change so much from city to city. For instance, for $300k house in San Diego you aren’t really getting much at all. For a $300K house in Indiana you’re getting one of the nicest places in town. So nice that you’d be an idiot to buy it.

      Re: education
      Obviously this is field dependent, but I also think that if you ENJOY what you do and you WANT to go to school for a higher degree then you absolutely should. I think that, especially in sciences, masters degrees can be kind of a wash. But still valuable on hiring decision day. However the quality or pay of the job may not be helpful for a bachelor in science vs a masters in science.

      You do however make excellent points about responsibility vs degree. However, job satisfaction doesn’t necessarily correlate to job responsibility. For instance, I feel much MORE satisfaction in a job where I have more responsibility and feel like I’m actually contributing to something in a positive way. So for me, a higher degree INCREASES my satisfaction. Whereas if you’re someone who views your job and the thing that pays for the other stuff in life you enjoy doing then responsibility could add to your dislike of your job because it is getting in the way of your life. Again though, this is person and career dependent.

      • TMcImmy says:

        Yeah, obviously house cost varies a lot by market. In some markets you can get a lot more house by perpetual renting than actually buying.

        It’s very hard to quantify non-monetary rewards from a career. In terms of dollars, most industrial scientists make significantly more money than academic scientists. But successful acadamians have excellent job security and benefits, and can retire pretty early if they want to (partially because so few do, which frees up a lot more money in the retirement pool). Most jobs do involve some choice between money and personal satisfaction. Most fine art photographers make a lot less money than taking pictures of weddings and babies.

        Non-salary concerns are where degrees being “worth it” breaks down. More responsibility is often a plus, especially if it comes with more freedom and perceived control. However, when it also comes with more job hours the math gets a lot more complicated. A per hour breakdown can be useful: a 50k/year job that is only 40 hours a week arguably pays better than a job that pays 80k a year but involves 80 hour work weeks when you take travel into consideration. “Do what you love” is great advice for people who love law or medicine or science and have the capacity for it, but for many people I feel better advice is “Do what you can tolerate for money, and spend your free time on what you love”. I honestly think for your average worker, they would be thrilled to make the same money but have less responsibility and more free time to spend with their families or on their hobbies.

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