Author Archives: AdamShrugged

College Majors, Earnings, and Damned Statistics

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“There are three kinds of lies: lies, damned lies and statistics.”
- Mark Twain’s Own Autobiography

There’s been quite a hullabaloo over a recent WSJ article about the Best College Majors for a Career. Actually it’s less an article and more of a bad ass compilation of data that analysts like yours truly drool over. It ranks quite a few majors on several criteria such as unemployment, earnings, and popularity. Among the findings surprising to no one:

  • Hard sciences, mathematics, engineering, and business have the lowest unemployment rates
  • Psychology and the arts are fine if you want a 1 in 5 chance of not working
  • School counseling has a quartile that makes less than I did in high school working in the mall
  • Petroleum engineers start off making more than I do now.

This is fascinating for many reasons but I thought I’d focus on some of the pitfalls of this type of data. The blog Code and Culture has already taken a stab at this with a couple of useful scatter-plot charts such as this one:

His basic findings are that many of the majors that had a small sample size are over-represented in both high and low unemployment rankings. IE, they are outliers.

An additional complaint of mine is that this ignores critical components of our modern higher educational system such as impacted majors. That is, majors that more people wish to pursue than the programs can accommodate. I may wish to give up my career as a financial analyst and become a petroleum engineer, but first I need to find a school that will allow me to enter (in addition to being admitted to the school following the rigorous application process).

These data are also compiled using only a single point of time (the 2010 census). Much more interesting would be a trended set of data (or a median of say 5 years). This would remove many outliers given all of the upheaval we’ve seen since 2008. How about a geographic perspective? I’m sure New York and California are heavily represented but what about other states? Construction Management may be having a tough time in California, Nevada, and Florida but could be thriving in Colorado, Utah, and Idaho.

Finally, all of these data points are based on respondant data. Just as people at high school reunions are more likely to be the successful ones (people who feel they don’t have anything to brag about may be less likely to attend), the people responding to the census with their major and earnings data are probably more likely to be people who consider themselves prosperous. A similar complaint is made about the cost of weddings.

A Trip to the Mall and a Year’s Worth of Socks

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I ventured out to a place I rarely set foot in and lived to tell the tale. A spot that glorifies an unending orgy of advertisements and instant-gratification: the mall. I can remember enjoying the mall as a teenager. It was a treasure trove of possibilities and quick distractions. I could find a quantity of delicious calories in the form of Jamba Juice or see what clothing I should be wearing. I could even delude myself into thinking I was sporty by looking at weight sets, sampling protein supplements, and getting advice on a new golf club.

This time I went in with a mission: to get a year’s worth of socks for ~$20. I had a definite need for some new ones. I pointed out some holes in Honey Shrugged’s socks and she courteously did the same for me. So I patiently waited for a deal to pop up. Sure enough, Slickdeals came to the rescue. As I passed by the kiosks, the store fronts, the endless screens, and cardboard cut outs all alerting me to the endless diversions available I couldn’t help but think “look at all of this useless crap.” I’m not sure what the difference is between the average consumer and myself; but somehow I can happily browse Fatwallet and Woot without feeling the need to jump on every offer. Even the pushy salespeople peddling stickers for my cellphone didn’t catch my fancy.

It made me feel wiser than normal walking past people in line for a giant overpriced carb-loaded pretzels and sympathetic for the parents who bring their young children. It’s almost an indoctrination process or a trial-by-fire to withstand having your children beg for every shiny object they see. I can’t imagine taking my own children here unless there was some sort of emergency. Why would I want to expose them to the refined advertising process that works on many adults?

I zigged and zagged to make my way quickly through the mall since I parked in a seemingly different time zone. All said and done it took about 30 minutes – not too shabby. It helped that I had pre-ordered my socks for store pickup. No delivery fee for me thank you very much. Plus, why would I want to miss out on earning some extra cashback through ebates? This transaction alone netted me $0.60! I’d need an extra $804 left in the bank for a full month to make that much in interest. Naturally I used a cashback credit card as well giving me an additional $0.20 or so.

These may not seem like a big deal but it all adds up. I don’t need to buy any more socks for at least another year. I saved major cashola by buying on sale, using ebates, and a cash back credit card. If I had just bought out of need I’d probably have gone through Amazon (best price is $30 for two) and confirmed this was the best price with an excellent Firefox plugin called Invisible Hand. It advertises itself thusly:

InvisibleHand gets you the lowest price on shopping & flights. Automatically. InvisibleHand shows a discreet notification when there are lower prices available on the product or flight you’re shopping for. It gives you a link directly to the lowest price.

Let’s check the math. JC Penny normally charges $20 for a six pack or $15 each if you buy two. Slickdeals provided me with a fantastic $10 off coupon code. I used ebates and a credit card to maximize my cashback (on my minimized expenditure). So my purchase looks something like this: $40 -10 -10.02 = $19.98. $1.75 was added for evil sales tax but I saved about $0.80 through cash back. Accordingly $19.98 + 1.75 – 0.80 = $20.93 for 12 pairs of socks ($1.74 each).

The Credit Card Arbitrage Talk

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In my previous article I discussed the merits of credit card arbitrage, the potential risks and rewards, as well as my plans for what I would do with the transfer. I was convinced the math worked. There was inherent risk but I was willing to accept it. The only question was would HoneyShrugged agree?

Prior to a full fledged discussion I wanted to prepare her. I let her know that I wanted to share something with her and that I wanted her opinion. This let her know that I was planning for the future and I fully expected to share that future with her and that I valued her feelings on it. It wasn’t all roses and puppy dogs though; I warned her that I was going to bust out a spreadsheet. Surprisingly, not everyone shares my passion for neatly organizing numbers in an appealing chessboard of rows and columns.

During the actual discussion I started with a brief outline of what my plan was. This took us in all sorts of discussions about interest rates and investment options but we didn’t get too derailed (one of the many reasons she is HoneyShrugged is because of our fun and lively discussions). I opened up a fresh spreadsheet and we talked through the timing and potential complications. It was helpful since we both had input in creating it instead of me presenting some monolithic wall of numbers. This is what we came up with

This isn’t the cleanest or prettiest job but it’s functional. Afterwards we agreed that the rewards outweighed the potential risks and that there was a lot of potential upside. I made sure I stressed the worst case scenarios such as losing my job or the stock market crashing. She pointed out that if any of these events happened I’d have worse things to worry about and would still have the means to pay off this loan.

I asked her what she thought I should do and gave several alternatives. I could ignore this completely and wait for a better offer. I could use a percentage of the money instead of the entire amount (the effects of which were easy to see since we had made a nice functional spreadsheet). She pointed out a couple of items I had just abstracted away originally like what if FAX goes up substantially before I was able to buy it.

In the end we agreed that the model was solid and that it would be smart to maximize this opportunity by removing the full amount possible. This was a lot of money but it wasn’t life threatening – the worst case scenario would harm me more than the fallout from this transaction would. Finally it was time to put our words into action. I carefully reviewed my past couple months of transactions to make sure I had changed any reoccurring charges to a different account and triple-checked that I didn’t have any balance remaining that would rack up interest while my balance transfer sat at 0%. Now that it’s initialized I’ll update this article once I have it invested so you can track my progress.

Pondering Credit Card Arbitrage

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I received a semi-reasonable offer from one of my credit cards offering a balance transfer offer. For those unfamiliar, a balance transfer is nearly identical to any other sort of loan such as a car loan or mortgage. Just like these loans, I need to be careful of three things:

  1. Term (the loan duration)
  2. Interest rate
  3. Fees

In this case I’m offered 0% until November 2012 with fees of $5 or 3% (whichever is higher). My Money Blog even details how to separate how easy the process is. Back in the heyday of fantastic credit card offers, I could easily get 0% and no fee cards for 18 months (and often did). I’d take this money and stick it into a splendid ING savings account spitting out 5% or more. I called this credit card arbitrage since it sounds sort of hi-tech and stealthy. In the current environment my ING account is sputtering along at a much less awesome 0.9%.

If I followed my old method, I would take out $10,000 from the card, rack up $300 in fees, and deposit it. Each month I’d make $7.50 ($10,000 x 0.9% / 12). After my one year I’d have made $90 while paying $300, not something I should just shrug off! To break even, I need to see my good old friends risk and return.

Investopedia's Badass Explanation of Risk vs. Return

Since I want a higher return, I’m going to need to accept higher risk. The most obvious place would be the stock market – so how about one of my old reliables: FAX. This is an interesting choice since I’d get $0.035 centers per share per month. Currently this works out to about 6% per year – double the return I’d need to break even. However, with this higher return I’d be accepting much more risk than a nice safe FDIC insured bank account. Just look at what happened on Oct 4th; FAX dived down to $6.28 per share! That’s down over 10% from its current price ($7)!

On the other hand, I want to own a lot of FAX. I love this equity and seeing those monthly dividends roll in makes me a little misty eyed. If I assume that within the next year I would have invested $10,000 into FAX anyway, I can look at this as a not-quite-free-lunch. I get to invest my cashola before I even get it by giving up the first 6 months worth of interest, not a bad deal as long as I’m confident that I would actually do this in the next year.

The time frame is important because of the terms of the loan. Paying 0% interest for a year is awesome, but what happens after that? It skyrockets up to a nasty 13.9%! Being a good-looking and of above-average intelligence Adam Shrugged reader, you know to pay off your credit cards when they aren’t offering you 0%. If I do not pay it off in time, even one month could easily erase any of my gains since I might need to sell it at lower price AND pay the super high interest!

So the question is: just how confident am I that I would want to invest $10,000 in FAX over the next year? Should I go full force, victory or death style and withdraw a full $10k? Maybe I should temper my enthusiasm a bit and do half of that amount. Being able to swing $5,000 over the next year sounds a little more realistic. Of course then I’d be limiting my potential gains both from dividends and if FAX increases in value over that time. If it jumps up to $8 per share I’d make a bonus of over 14% (assuming I sell in time).

One final and very important point to consider is that this shouldn’t just be my decision. I need to discuss this with the real boss – Honey Shrugged (the girlfriend). Moving a five figure sum of money around is a potential game changer – what if FAX goes kaput and I lose it all? Very Bad Things (VBT) – I’d probably be sent to my room without any desert or something even worse. So while ponder this move, I’m awaiting an opportune time to discuss the matter with her. In the meantime, feel free to share your advice or bitter sweet reality checks.

My Trip to the Library

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Mr. Money Mustache made an excellent point in his article “Get Rich With: Your Local Public Library.” Using the library is not only something you’re already paying for (through taxes), but in all probability also a better use of time then either of us would care to admit. I’m not sure I’d readily agree that I can “get rich” using the library, but it definitely won’t hurt the cause.

I will be the first to admit that I love books. I love them so much that I spent $178.37 on them in the past twelve months (not including gifts for others). I love looking over my ever expanding library (ok, piles on my nightstand, and floor, and office, and…) remembering favorite quotes or thinking of clever settings. It gives me a great sense of accomplishment to look over my literary conquests and think that I’ve added all of this combined knowledge to my own. I hate the idea of getting rid of my current books (you can pry my books from my cold, dead fingers) but I also love the idea of being $200 richer per year.

After reading MMM’s article, I decided I’d postponed my inevitable trip long enough and drove over to my local library branch. It is small county branch but part of a much larger system. After helping a small girl ahead of me, the librarian signed me up by showing her my driver’s license. I didn’t need to pay any fees or provide any more documents (I must be getting numb from all of the places that need eight forms of ID and a blood sample). I seemed to make the librarians day – she was very cheerful about signing me up and answering all of my questions:

  • Yes I do have access to other libraries in town. Did you know that included the state university libraries as well?
  • Yes I can borrow multiple items at once. Also be sure to login to our website if you want to renew them from home.
  • We do have DVDs available. Did you also know about our audiobooks and video games?

 

I was given my library card, a smaller one for my keychain, and a user guide for the library system with bullet points of what was offered, frequent questions, and this branch’s hours. I left with an introduction to mechanical engineering and a few books on getting ahead in your career (a guilty pleasure of mine). I’m sure I would have brought home something by Jamse Clavell if I hadn’t recently bought all of his books again during Border’s closing sales.

With my new treasure trove of informational acquisitions, I’m planning on making the trip at least bi-weekly. Whenever my seemingly immortal subscription to the Wall Street Journal runs out I’m planning on increasing my visiting frequency to once each week so I can catch up on those well written (yet expensive) articles.

Now that I’ve convinced you to sign up for the library as well to quit your expensive book habit, let’s take a look at the math of how this minor change will impact our bottom lines:

 

Yearly spending on books  $     200.00

Interest (6%)

Savings

Year 1

$0

$200

Year 2

$12

$412

Year 3

$25

$637

Year 4

$38

$875

Year 5

$52

$1,127

Year 6

$68

$1,395

Year 7

$84

$1,679

Year 8

$101

$1,979

Year 9

$119

$2,298

Year 10

$138

$2,636

Given a 6% return on our money and savings $200 each year, we can expect to have over $2,500 saved after ten years. That’s quite a return from simply using a service I’m already paying for. Heck, if I can find four more changes like this I’ll be ahead by over $10,000!