Is an MBA Worth it or a Complete Waste of Time and Money?

As a finance guy in my late 20s, I have seen a ton of my friends contemplate going to business school. While I have heard many different reasons on why my friends feel the need to get an MBA, I still never fully understand why they ultimately decide to go.

What confuses me even more is that I hear so many people talk about how little they actually learned in business school. So, I continue to ask myself why people feel compelled to get an MBA. 

I try to think of myself as a rational human being. Probably a little too rational for some people, but I usually go about making decisions by trying to understand what do I gain and what do I lose. I have to admit that my reasoning has not been perfect, but despite all the career bumps along the way, my life seems to be back on the right track.

Before we jump right into why I think business school may be a waste of time and money, it would be helpful to walk through my background and the events that helped put me in a position to figure out what exactly I want to do longer-term. 

A little bit about myself…

After undergrad I was fortunate to start my career in Mergers & Acquisitions at a well-known investment bank. I spent a few years there before ultimately figuring out I had a passion for investing, so I transitioned to a large hedge fund. It took me a while to figure out what exactly I wanted to do, but through my experiences I started to learn what does and does not resonate most with me.

Once I determined that banking was not right for me longer term, I initially struggled to figure out what I wanted to do next. I followed the traditional path and tried to get into private equity. I knew I was not 100% committed to it so I did not end up getting a job. It was ultimately through a deal I was working on in banking that led me to realize that the public markets could potentially be a good career for me.

After interviewing at dozens of places, I was fortunate to receive an offer at a large multi-manager hedge fund. Despite being a very sought-after job that could pay up to seven figures if I stuck it out for a few years, I very quickly realized that the investing style was absolutely not what I wanted to do.

Making more money will not make you happy

Since I absolutely did not like what I was doing every day and had no passion for the investing style there at the multi-manager, I knew I would continue to be extremely unhappy if I stayed. If you are interested in learning more about my experience there, read my post on my Life at a Multi-Manager Hedge Fund.

I realized that after you make a certain amount of money, you start to consider if you actually like what you are doing. The majority of your life will be spent working, so you really need to enjoy what you do or else you will burn out very quickly.  

I decided to risk it and quit to join a small start-up hedge fund with a true value investment philosophy, which is what I wanted to do. After having such good prospects when I joined, the firm shut down in just four months. You could imagine how I felt after going through all that. I went from being on a path where I could make seven figures in a few years to being unemployed (learn more about my life experiences by reading My Life Story – How it All Started).

It took me some time to get back on my feet. However, I am extremely glad I was able to go through all those highs and lows thus far in my career. Instead of comfortably staying in my first job in banking, I moved around and was put in a position that forced me to think about what path is best for me longer-term.

It took three different jobs in five years, but after all that, I knew exactly what I wanted to do.

Why I am sharing my story

Many of you may think that I am biased or do not know what I am talking about because I never had first-hand experience of the “benefits” of an MBA degree. While that is true to an extent, I have a ton of friends who have gone or are currently in business school. 

The choices I made throughout my career have definitely not been the easiest. Not many in my position with such a clear-cut path to making a lot of money would have chosen to quit for a random start-up hedge fund. I could have chosen to go to business school once I knew I transitioned to the wrong job, but instead I took the riskier path.

So, why did I choose not to pursue an MBA degree?

Once I knew that it was time to move on to another role, I thought about all my alternatives. There were two choices in my mind; I could either transition to another company or go back to get an MBA.

As I thought about this decision, I tried to understand the following:

1. What is the total cost over two years?
2. What are the most common reasons people get an MBA?
3. When does it actually make sense to get an MBA?

1. What is the total cost over two years?

To say that business school is expensive would be an understatement. Tuition plus room and board for a top 10 business school can easily reach ~$200K over the course of two years.  

However, the true cost of getting an MBA is so much more than $200K. Most do not factor in the opportunity cost of not making any money during that time frame as well as the lost savings from compound interest.

Let’s say you were making ~$175K per year before deciding to go to business school and save $75K annually. That is $150K total that you missed out on saving over two years. Adding the lost savings on top of the $200K cost brings the total cost of business school to $350K.

But it does not end there. That $350K is actually worth A LOT more to you because of the impact of compound interest. Einstein infamously wrote that compound interest is the “eighth wonder of the world.” I am going to show you why.

Assume instead of going to business school you invested that $350K in the stock market and left it there for 40 years until you retired. The market has averaged ~7% per year historically. Assume that continues for the next 40 years (say you are 25 now), then that $350K turns into over $5MM by the time you are 65.

Now we can see why the actual cost of business school is so much more than just tuition, room and board. If you do not believe me, you can do the math yourself. The effects of compound interest are pretty crazy!  

And if you had to take out $200K in loans then good luck saving any money for the next 10 years after business school.

Now some will argue that an MBA is an investment that will significantly increase your potential earnings afterward. This is a fair point as long as you can guarantee that you will be making significantly more money post-MBA than you do now.

To summarize: if you do not think that your income potential will increase significantly more per year with an MBA degree relative to if you did not get a degree, then it is not worth it from strictly a financial point of view.      

2. What are the most common reasons people get an MBA?

When you first start your career, you may have a general sense of what you want to do based on what you studied during undergrad. You most likely took that first job offer you received during your senior year. I certainly did.

Now let’s sit back and think about this for a minute. Back then when we were trying to find our first jobs, none of us had any real leverage or many options. How likely is it then that the first job offer you received and accepted is going to be the perfect fit for you? For most, it most likely is not.

Those who stay at their first job for a while will later start to contemplate whether this job is really what they want to do. They become extremely complacent and scared to take risks because they have become so comfortable in their current role. They put in the sweat equity and developed a reputation in their current roles, so why change jobs when you know that you will have to build that sweat equity all over again?

Business school offers an easy path for these individuals to redefine themselves. They choose to go to business school because it is the safest path in their minds.  

The most common reasons why people think they need an MBA degree fall into two categories. Most either feel lost or want to change something about their careers.

a) Feeling lost

• “Everyone else seems to be doing it, so I have to”
• “Don’t know what I want to do with my life”
• “Don’t know anything about business or finance and think I need to learn”

If you fall into this category, you likely woke up one day thinking something needs to change. Either you have been in the same role for 4+ years or you just are not satisfied with your current situation and think something needs to be done.

For many, business school seemingly sounds like the best way to fix these types of life problems. You can quit your current role without carrying the stigma attached to being unemployed. You get two more years of vacation to figure out what you want to do and get to add business / finance skills to your toolkit. Sounds amazing right?

What if I told you that you are using business school as an excuse? That you are not taking initiative to figure out what path is best for you on your own?

And what if business school actually takes you down the wrong path? You are surrounded by people who are also in a similar situation as you are and do not know what they want to do with their lives.

Most even follow the herd and take the traditional finance path of going after investment banking or consulting roles. How is this type of environment suppose to help you determine what is best for you longer term?

b) Career

• “Want to jump start my career and make more money”
• “Feel stuck in my current role and need to have more career optionality”
• “I was recently laid off and can’t find another job”
• “I want to be an entrepreneur and feel like two years of vacation in business school will give me the time to meet others and finally start a company”
• “I want to build my network”

I never understood why people feel that they need to get an MBA to change or jump start their careers. When you are in your 20s, all that employers really care about is if you are hardworking and can pick up new concepts quickly. If you want to change careers and know what you want to do, then reach out to your network and talk to those in the positions that you want to be in. Put in the effort to learn any new skillsets needed for the role.

If you were recently laid off and have trouble finding another job, then create a detailed plan to put your search efforts back on track. Wake up early, go to the gym and try to stay as regimented as possible. Probably 75% of the reason you continue to stay unemployed is mental. I was unemployed for about four months when I was trying to figure out what I wanted to do next. Yes, it is tough and you can end up going crazy at home when you have nothing to do. You can lose your focus and become extremely distracted, especially in today’s world with Netflix/social media/cell phones/etc.

Allocate at least five hours every day to search for a job. Make sure you are completely focus during this timeframe and have no distractions. Stay positive and sooner or later, consistently spending this much time finding a job over the course of a few months will land you your next gig.

If you want to be an entrepreneur, then going to business school is probably the worst decision you can do. If you do not have a business or idea that you are currently working on, business school is not going to change that. It will only pull you farther away from being an entrepreneur because you will be saddled with $200K in debt and will be forced to find a normal job to pay the bills.

Yes, there are obviously some successful stories out there of people who went to HBS or Stanford and started multi-billion-dollar companies. Do not assume that is the norm because it is not.    

Lastly, I will concede that business school is a good way to build a network. I appreciate the connections I was able to build during my undergrad years and know of a lot of older folks who continue to stay in touch with their business school friends. If you do not care about the actual cost, then be my guest and go get an MBA to build your network.

3. When does it actually make sense to get an MBA?

After reading everything above, you may believe that I think business school is a complete waste of time and money regardless of any situation you are in. However, I actually believe there are a number of circumstances where it makes sense to pursue an MBA.

So, when does it make sense? There are three main reasons:

1. If your current employer offers to pay for it
2. If you currently make less than ~$100K a year and do not have to take on a ton of debt to get an MBA
3. If you pursued a military career straight out of undergrad

The best situation to be in is if you like what you currently do and your employer offers to pay for your business school. This way, you get to have your two years of vacation, build your network and business skills toolkit, and graduate without spending a single dime! You will already have your career lined up afterward (assuming you go back to your old employer) and you can fully enjoy the social / academic benefits of business school.

Secondly, if you pursued a military career, then it makes complete sense to get an MBA. You were likely away / out of touch during your time in the military and likely do not have much of a network to build on. While you still likely have to pay for it (especially if you do not want to go back into the military afterward), the total cost is worth it to help jumpstart your non-military career.

“What am I supposed to do then to figure out the right path in life?”

Yes, I will admit. This is one of the hardest questions to answer and not something I can answer for you. The point I am trying to make is that business school is not going to help solve this question any better than if you tried to figure it out on your own.

From my own personal experience, the only way you can figure out what you want to do is to get out there, try many different things and see what resonates with you most. Try new careers, try new hobbies, take a pay cut, network and talk to others in different career paths. Take a risk and do something different.

I am not advocating to quit your current job today for just anything. Put in the time to research and talk to people to figure out what sounds interesting.

I knew investment banking was not for me because I knew what the job was like if I stayed for another 10 years. I proactively reached out and talked to those in the position that I would be in down the road. I networked and talked to people in numerous start-up roles as well as those in venture capital. I completed various internships in corporate roles at large companies. I worked at three different hedge funds to ultimately figure out what investing style I resonate most with.

These real-world experiences led me to determine what path works best for me. The question is do you have the courage to go out there and do what it takes.

Definitely let me know if you disagree with any of the points I made. This article is probably somewhat controversial for some people, so understand this post is tailored primarily to those people who already make a significant amount of money pre-MBA (you know, investment bankers, private equity / hedge fund professionals, etc.).