Friday 27 October 2006

Income: Is higher education a good investment?

One of the fundamental tenants of wealth creation has always been to invest in your education. Latest figures (released Thursday by theUS Census Bureau) confirm this. The figures show that the average bachelor's degree is worth about $23,000 a year - that is the average gap in earnings between adults with bachelor's degrees and those with high school diplomas. College graduates made an average of $51,554 in 2004, compared with $28,645 for adults with a high school diploma, an average of $19,169 for those without a highschool diploma, and an average of $78,093 for those with an advanced college degree.

Of course, this study didn't determine how much of the increased earning power is due to having the intelligence to obtain the qualification, and how much is due to the education/qualification/networking of getting the further education.

The potential effect on your net worth is even greater than the raw salary figures suggest. There is a fixed "overhead" cost of living, so, assuming that you can exert some self-control and limit your spending as your salary increases, an increase in salary has a great effect on your ability to accumulate wealth. For example, if your basic cost of living is $30K pa, then a 50% pay rise from $40K to $60K has the potential to triple your ultimate net worth (saving and investing $30K rather than $10K pa).

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