How-to Guide: Get a Masters Degree or Begin Working?

Are you wondering if it’s better to get a Master’s Degree or enter the workforce? While the decision may be personal, the math can be a little more practical.

As a general rule, getting a Master’s Degree will have a higher return on your investment if you plan to be in the workforce for 25 years or more. If your short term plans are to be in the labor market for 10 years or less, you will be better off entering or remaining in the workforce instead.

To compare the cost of getting a master’s degree against entering or remaining in the workforce, take your current salary and project it out 10 years. Make a ‘Working’ column and add a 3% salary raise year over year. Make a ‘Master’s Degree’ column, zero out years 3 and 4, and raise your salary by 40% in year 5. Sum up the two columns, subtracting $100,000 from the ‘Master’s Degree’ column, and compare. Project out to 20 or 25 years to take peak earning years into consideration.

There are many factors to weigh when considering this major life decision, but we’ll help break down the major pros and cons of each and give you the tools to do your own calculations to help you make your decision easier.

Should I get a Master’s Degree or Work?

First, we’d like to congratulate you on considering such an important decision. You’re on the cusp of something grand, and it’s important to get your calculations right before beginning your journey. There are two routes to the top of your mountain – each with its pros and cons.

If you take the Master’s Degree route, you may be sacrificing several years worth of working income and/or time away from loved ones. If you pursue your working efforts, you may miss out on opportunities available only to those with a higher degree. What should you do?

Well, while we’ll get to the major reasons to consider later in the article, we’d actually like to begin with a cost analysis. You only have so much time and money to give, and it’s important to know what your investment might be worth in the long run.

Cost Analysis – Master’s Degree vs. Working

We encourage you to get your own data for these calculations in order to help make your projections as realistic as possible. But for our purposes here, we’ll first give you a working example to enable you to recreate this situation with your own numbers and data.

Let’s begin with a few assumptions:

Time it takes to get a Master’s Degree: 2 years

Starting Salary: $60,000 (slightly higher than the average)

Cost of tuition: $100,000

Average Yearly Raise: 3%

Salary Increase Post-degree: 40% (conservative estimate, though some categories can be higher or lower)

To compare the cost of getting a master’s degree against entering or remaining in the workforce, take your current salary and project it out 10 years. Make a ‘Working’ column and add a 3% salary raise year over year. Make a ‘Master’s Degree’ column, zero out years 3 and 4, and raise your salary by 40% in year 5. Sum up the two columns, subtracting $100,000 from the ‘Master’s Degree’ column, and compare. Project out to 20 or 25 years to take peak earning years into consideration.

Transferring our assumptions into calculations, you’d find that your total compensation after 10 years is actually higher if you’d stayed in the workforce instead of getting a Master’s Degree (assuming you didn’t work during schooling years).

In our example, the two years spent out of the workforce and the cost of tuition made the difference between working and a degree $106,386 after 10 years. If your plan was to be in the labor market at the same job for about this long, it would make more financial sense to stay working.

Re-make this table with your own data. Input your working or projected salary out of school. Then Project your Year 5 Master’s Degree salary based on the average percentage salary increase for your degree. Review how the numbers stack up.

How to Take Advantage of Peak Earning Years

However, if your plan is to remain in relatively the same industry or role over the course of your entire career, you should plan to take advantage of your peak earning years. For women, that’s between ages 35 to 44, and between ages 45 to 54 for men (see details here and more resources here).

If you were to begin working at age 22 and work until or through your peak earning years (about 20-25 years for our example) getting a Master’s Degree begins to make more sense. After 25 years, someone with a Master’s Degree will have made about $315,333 more than someone who hadn’t gotten a Master’s Degree.

Again, re-make this table with your own data. Input your working or projected salary out of school. Then Project your Year 5 Master’s Degree salary based on the average percentage salary increase for your degree. Review how the numbers stack up as you consider your high-income earning potential into your later years.

Which is Better for Me?

And there you have it! A simple breakdown to help you consider the return on your investment for getting a degree. Remember that you’ll need your projected annual salary increase, cost of schooling, projected salary increase post-degree, and your time horizon to figure out the answer for yourself.

In sum, it may make more financial sense to get a Master’s Degree earlier in your career if you plan to be in the work force for a long time. If your time horizon is shorter and you intend to work only for a few years or leave before reaching your peak earning potential, then you’d be better off not investing in a Master’s Degree.

However, it’s important to remember that this decision can and should be made by considering more than just the return on your financial investment.

Best Reasons to Get a Master’s Degree

While there are many reasons to pursue a Master’s Degree, here are some of the major factors to consider.

1. Job Security. When stacked against the competition, you’ll almost always edge out a peer with a Bachelors if times are tough for your company or the economy at large.
2. Getting a PhD. If you eventually plan to pursue a PhD, a Master’s is a must for most scenarios.
3. More Job Opportunities. Additional learning will expose you to various sectors in your discipline, and provide you with the training to take a new opportunity that may come up down the road.
4. Higher Earning Potential. You may be able to make 30-85% more money post-degree than without a Master’s Degree, depending on your area of study.
5. Competition. Getting a Master’s Degree is becoming an order qualifier instead of an order winner in current society. A degree will allow you to compete for the best opportunities.
6. Learnability. It may be harder to get into the habit of studying and taking tests after a long time out of school.
7. Pivoting. You may be ready for a career switch or pivot, and pursuing a degree is a great way to obtain skills in a new area.
8. Flexibility. There are many options for online degrees that are cost-effective. Additionally, you may be able to continue working and pursue your degree after working hours in order to maintain your income and counteract the cost of tuition.
9. Subsidies. You may be able to obtain scholarships or negotiate your work to help pay for your degree.

Many of the factors above can have an influence on your calculations as listed earlier. Having your company pay for your degree means you wouldn’t have to subtract it out of your total overall earnings, for example. Additionally, if your projected career comes with more specified pay increases, you can project those into your timeline as well.

Best Reasons to Begin Working Instead of a Master’s Degree

Next, you’ll want to consider the major reasons of entering into or remaining in the workforce.

1. Saving Money. The money that you don’t spend on tuition goes straight into your bank account and, therefore, your wallet.
2. Compounding Interest. The time that you take to save and invest your money earlier on in your career means that you
3. Degree Matters. If your field of study wouldn’t actually yield a higher income post-degree, it wouldn’t be worth your time or money to pursue.
4. Experience. Working and getting real world experience is invaluable. Not only do you begin to make money and learn how to manage it, you begin to hone in on what you like or don’t like about your job or industry. Doing so can help you craft a happier future for yourself since you have more practical (and personal) data to leverage.
5. Application. Many schools want to see someone who has taken time to put what they learned in their undergrad years to practice. If you’ve spent four years learning something, give yourself a chance to put it to good use.
6. Results. If you can out perform your peers or competition without a degree, then you will continue to succeed throughout your career regardless. Your talent and abilities to obtain results for your company may be more valuable to them than another degree.
7. Company Growth. You will network internally and be well positioned for internal growth. The longer you remain with your company, the more projects and influence you may have, which could yield better results long term.
8. Raises. You may be a master negotiator, or your company may be very generous in giving raises. If you can consistently negotiate higher raises for yourself you may be able to close the gap on the increased bump a degree could otherwise give you. We believe asking for a raise is always a good idea.
9. Balance. Depending on a regular source of income and work schedule can allow greater stability in your personal and family life. You may be wanting to take full control of your time, and working can enable you to create a positive work-life-balance.

These factors are more difficult to weigh into a financial analysis since they’re hard to project, but sitting down to think 10 or 20 years out may help you know what questions to ask your family or colleagues to help best set you up for success.

Summary

Overall, there isn’t a bad option when it comes to getting a Master’s Degree or pursuing your career. If you plan on being in the workforce for a long time, you’ll be better off obtaining a degree. If your plans for the labor force are short term or you’re still undecided on what exactly you want to pursue, remaining in the workforce is probably best for you. Either way, we encourage everyone to ask for a raise to better increase their earning potential. Check out these 10 tips to prepare yourself for when the time is right.

All this being said, we are a financial independence community, so we encourage you to take complete control of your finances and ascend your financial mountain. Make sure to avoid get rich quick schemes when trying to come up with money for your degree, and to keep an eye on your savings rate as you generate income each year.

Whichever route you take up the mountain, we’ll be ready with you at basecamp to help you begin your journey.

Climb on, FinBase.