When deciding whether to fund
the training you need to switch careers, try this calculation.
By Ali Velshi
One of the key measurements in deciding where to put your money is the expected ROI, or return on investment. History and the current state of the economy allow you to make an informed guess about how different assets or classes of assets may perform in the future.
Past performance is no guarantee of future results.
Calculating ROI is straightforward enough: You take the final value of an investment, subtract what it cost you and divide the result by your cost to arrive at the percentage yield. Buy a stock for $20 and sell it for $25 in a year, and your ROI is 25% (not counting trading costs).
What about calculating the ROI on you? More specifically, on the cost of reinventing yourself to better compete in the changing economy. Let's say you work in a shrinking industry and you want to make a mid-career switch into one that is growing. How do you figure out the return on that transformation?
This is a question that applies not only to the factory worker who sees jobs headed overseas but to anyone who thinks the decisions he or she made about the future while in high school or college are no longer valid. Unfortunately, there's no straightforward calculation that can account for all of the factors that go into making a career-switch decision. This isn't a straight financial investment, after all. Aptitude, what you value in life and your family situation are huge variables. Still, running a few numbers is a useful starting point.
FIGURING THE PAYOFF
For the purposes of this exercise, let's look at the ROI for a fairly senior manufacturing worker in Rhode Island who, at age 40, is trying to decide whether to retrain as a registered nurse. The starting salary for an R.N. in Rhode Island is about $60,000. Our experienced factory hand makes $53,000. So the difference in salaries from the start is substantial but not great. Our worker also has to invest to retrain as a nurse-- a minimum of a two-year associate's degree, at a cost of at least $40,000, plus financing-- and will have two fewer years of income.
So is this transformation worth it? Well, let's also remember that manufacturing wages haven't been growing much for quite a few years; nursing's wage growth is healthier, and a nurse will have more opportunity for advancement. Taking all of these considerations into account, the ROI on that nursing degree is around 9% a year.
There's more to this picture, however. The number of factory workers in the U.S. is expected to shrink by 50,000, or 2%, between 2008 and 2018, according to the Bureau of Labor Statistics. Over the same period, the number of R.N.'s is projected to grow 22%, to 3.2 million. The chances are much greater in manufacturing than nursing that you'll suffer a layoff and have to take a pay cut-- as 40% of workers let go and re-employed since 2008 have done.
WATCH FOR TRAPS
"Knowing with some certainty that a sector has a rosier long-term future does a lot for your peace of mind and makes it easier to think about growing older in this economy," says Sylvia Ann Hewlett, founding president of the Center for Work-Life Policy.
Still, Hewlett argues that switching to a field simply because it's growing could be "the kiss of death" Give up your job to invest in a career that you end up hating or that you're not very good at and you'll have done yourself no small amount of harm. And starting over can be difficult. There's the strain on the family budget, and the family, during retraining. And although R.N.'s aren't at the bottom of the nursing ladder, our worker will be at the bottom of the R.N. ladder, pulling the less desirable shifts. The calculation doesn't account for all that. The easy math, though, can tell you if it's worth thinking about the hard stuff that comes with making over your work life.
By Ali Velshi
One of the key measurements in deciding where to put your money is the expected ROI, or return on investment. History and the current state of the economy allow you to make an informed guess about how different assets or classes of assets may perform in the future.
Past performance is no guarantee of future results.
Calculating ROI is straightforward enough: You take the final value of an investment, subtract what it cost you and divide the result by your cost to arrive at the percentage yield. Buy a stock for $20 and sell it for $25 in a year, and your ROI is 25% (not counting trading costs).
What about calculating the ROI on you? More specifically, on the cost of reinventing yourself to better compete in the changing economy. Let's say you work in a shrinking industry and you want to make a mid-career switch into one that is growing. How do you figure out the return on that transformation?
This is a question that applies not only to the factory worker who sees jobs headed overseas but to anyone who thinks the decisions he or she made about the future while in high school or college are no longer valid. Unfortunately, there's no straightforward calculation that can account for all of the factors that go into making a career-switch decision. This isn't a straight financial investment, after all. Aptitude, what you value in life and your family situation are huge variables. Still, running a few numbers is a useful starting point.
FIGURING THE PAYOFF
For the purposes of this exercise, let's look at the ROI for a fairly senior manufacturing worker in Rhode Island who, at age 40, is trying to decide whether to retrain as a registered nurse. The starting salary for an R.N. in Rhode Island is about $60,000. Our experienced factory hand makes $53,000. So the difference in salaries from the start is substantial but not great. Our worker also has to invest to retrain as a nurse-- a minimum of a two-year associate's degree, at a cost of at least $40,000, plus financing-- and will have two fewer years of income.
So is this transformation worth it? Well, let's also remember that manufacturing wages haven't been growing much for quite a few years; nursing's wage growth is healthier, and a nurse will have more opportunity for advancement. Taking all of these considerations into account, the ROI on that nursing degree is around 9% a year.
There's more to this picture, however. The number of factory workers in the U.S. is expected to shrink by 50,000, or 2%, between 2008 and 2018, according to the Bureau of Labor Statistics. Over the same period, the number of R.N.'s is projected to grow 22%, to 3.2 million. The chances are much greater in manufacturing than nursing that you'll suffer a layoff and have to take a pay cut-- as 40% of workers let go and re-employed since 2008 have done.
WATCH FOR TRAPS
"Knowing with some certainty that a sector has a rosier long-term future does a lot for your peace of mind and makes it easier to think about growing older in this economy," says Sylvia Ann Hewlett, founding president of the Center for Work-Life Policy.
Still, Hewlett argues that switching to a field simply because it's growing could be "the kiss of death" Give up your job to invest in a career that you end up hating or that you're not very good at and you'll have done yourself no small amount of harm. And starting over can be difficult. There's the strain on the family budget, and the family, during retraining. And although R.N.'s aren't at the bottom of the nursing ladder, our worker will be at the bottom of the R.N. ladder, pulling the less desirable shifts. The calculation doesn't account for all that. The easy math, though, can tell you if it's worth thinking about the hard stuff that comes with making over your work life.
Turn to your Naperville Investment Advisor experts at Platinum Financial to accurately calculate your ROI.
From the November 2011 issue of Money© 2012 Time Inc. All rights reserved.
From the November 2011 issue of Money© 2012 Time Inc. All rights reserved.
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