Hi, Everyone! Mr. Minion here.
Today’s topic will be focused on the value of a Master Degree in Business Administration (“MBA”). This is a topic that is very close to my heart as I have always envisioned myself taking an MBA and working overseas thereafter.
As we all know, an MBA has the potential to help you change career paths, increase your income and make connections.
But does taking an MBA help you move towards your goal of early retirement?
Before moving into the analysis, let me state a few reasonable assumptions first:
- You are paying for your MBA school fees by yourself
- You have just graduated from college with a basic salary of $48,000* per annum (before CPF) and a yearly bonus of 2 months making a total of $56,000 per annum.
- You get 3% salary increment per year.
- You leave your first job/get promoted after 3 years and job hops/get promoted every 4 years thereafter at 25% pay increment per time.
- You are only interested in entering the top business schools.
- You want to retire at 45-50 years old with $2 Million SGD.
- You will only work in Singapore
*Figures are an estimation based on the recent 2016 GES Survey.
In order to conduct our analysis, we will assume that there are 2 completely similar individuals, one who chooses to take an MBA (Individual 1) and one who chooses not to (Individual 2).
In order to make this analysis easier to understand, we can classify both individual’s journey to early retirement into 3 different categories: Pre-MBA, During MBA and After MBA
Individual 1: He needs to save for his MBA education (MBA Tuition + Others: $200,000 USD = approx. $275,000). He has a low-risk profile and chooses to save in fixed deposits. This cost of an MBA is taken from Harvard Business School’s Website.
Individual 2: Do not need to save for MBA. He has a moderate to high-risk profile.
Individual 1: No Income as he is still studying
Individual 2: Continues earning income and building wealth
Individual 1: Starts building wealth from scratch but with a much higher income. (Starting pay for MBA holders is calculated by taking the average weighted salary of the top 10 business schools as per ranked by Financial times)
Individual 2: Continues building wealth
From this analysis, you can see that individual 2, who chose not to take up an MBA retires after 20 years of work while individual 1, who chose to take up an MBA retires after 22 years of work. From this simple analysis, we can conclude that taking up an MBA does not help us move faster towards our goal of early retirement.
However, from this analysis we can see that an MBA is beneficial to us should we choose to retire with > $2 Million SGD. Individual accumulates wealth at a much faster rate than individual 2.
Do bear in mind that the analysis conducted is a simple one and does not take into account all the possible scenarios. For example, individual 1 (with MBA) could take a longer than usual time to find a job, there could be a cap of maximum annual salary, an individual with MBA might get larger pay increments etc. Therefore, please take this analysis with a pinch of salt.
Till next time!