Opportunity Cost

I studied Economics when I went to college.

An “opportunity cost” gets bandied around in the discipline of Economics a lot. I forget the exact definition of opportunity cost but I a textbook defines opportunity cost as a cost that you incur when you expend a resource that you own (very often money).

In some cases, the opportunity cost of taking an action equates to the money that spend. Let’s do a thought experiment. The opportunity cost equals to the money that you spend if you live a world where time has no meaning and only one item exists in the world where it has any worth to you. However, we do not live in such a perverse world and we have plenty of options to spend our money.

Whether one consciously thinks about it or not, he constantly weighs different opportunity costs and choose an option that yield the highest value to him. For example, if I choose to buy a tablet computer for $399, not only do I believe that the tablet computer has at least as much value as what I pay, but also I believe that spending $399 anywhere else yields lesser value than the tablet. One bring up a counter point to the inner calculus that one goes through (nobody weighs all possible options), the internal measurement of opportunity cost inherently has a significant subjectivity bias.

When I chose to get my business school, I understood immediately that I have to spend significant amount of money in education and forgo my earnings at the same time. The tuition may costs approximately $100K and the earnings easily exceeds that amount.

Would I do it again if given a chance? Yes. But I would think about it pretty hard before making the final decision. Business schools open doors for many people. Could I have open some doors without an MBA? I guess I will never find out.

Where I stand today

While some people neglect their finances (personal finances, not the Finance as an academic discipline) during business school, I took the time to think about the business school loans during my time at UCLA Anderson. Fairly early on, I realized that I took out mostly un-subsidized loans and understood that the loans will pile up rather quickly as interests on the un-subsidized loans compound.

I mentioned in “The Very First Post” that I took out $90,673.98 to finance my MBA, but I did not mention where I stand today.

Today, my MBA loans stand at $80,993.38.

I made payments that total at $12,583.96 throughout business school. Furthermore, I made payments that total at $12,061.62 subsequent to business school. So I made loan payments at a grand total of $24,645.58 to go from $90,673.98 to $80,993.38 .

Thus when I do the calculation: 80,993.38 + 24,645.58 – 90,673.98 = 14,964.98

…I spent roughly $15K in just interest alone.

But things would have looked a lot worse if I had not made those payments during and after business school…

The very first post

$90,673.98 is a price tag that I can put on the “transformative” experience. Actually not really, my MBA actually cost a bit more than that. I am a newly minted MBA who got his degree from UCLA Anderson School of Management past June.

As many students do, I financed my MBA education by taking out student loans to fund my education, in the hope that I will pay back my loans with my increased earning power from my education.

Do I have greater earning power? Yes. Do I have greater disposable income? That’s a tougher question for me to answer… Thanks to the monthly student loan payments that I need to make, the increase in the disposable income appears more marginal than I prefer.

I need to conquer that $90,673.98 before I truly become a free man and I want to chronicle my path until I get sick of writing this blog.

Oh and maybe I will write about random things that I think about daily…