Decision: Car or Education?
I had saved up a decent amount of money with my consulting business, and my current car was just about out of warranty.
So should I spend my savings on a new BMW, or going back to school?
Now, in theory, the "smart" choice was obvious.
Pros for Car: Fun! Flashy!
Cons for Car: Expensive. High depreciation.
Pros for Education: Knowledge = Power!
Cons for Education: Hard work.
So I went ahead and took a year off doing a full-time MBA program at Wilfrid Laurier.
From a financial standpoint, it's not entirely clear. Let's say, to make it simple, my savings were $100.
Ignoring inflation, the car would have been worth about $40 today, whereas the education money is completely gone = $0.
Also, had I bought the car, I would have earned my regular income that year (let's say $100 again) instead of the reduced amount while taking full-time school (let's say $20).
So for Year 1, ignoring inflation/interest, the education choice left me with $20, whereas the car choice would have netted $140.
To make pure financial sense if you expected a 5-year payback, you'd need an additional $120 of yearly income over the next 4 years (+$30/year).
As it turns out, Year 2 was also a reduced income year, because taking the MBA convinced me to completely restructure my business. Years 3-5 have been progressively better, but I have not yet reached the breakeven point.
So did I make a mistake not buying the fun, flashy car?
From a strict 5-year payback period looking at only financials -- Yes.
However -- there were a lot of other factors involved. Prior to the MBA, I was a sole consultant with one client. This carried with it a lot of risk, substantial travel, and limited freedom.
Now I have many customers, and staff to continue working on projects when I'm away. I'm working far less hours, and have lower stress.
In short, the decision improved my quality of life substantially -- and that's worth more than money.
So if I had to go back to 2005 and make the decision again, would I make the same choice?
You bet I would.
Turns out knowledge is power.