Thursday, October 15, 2015

Managing Income Risk

Managing future income risk-- this is something I have been seriously mulling over for the last few months with graduation just around the corner in December. 

I am currently considering two job offers. One is in my field of study (engineering) and comes with a higher salary in Chicago. The second is for a data scientist position in Indianapolis and while the salary offer is lower absolutely, the cost of living is much lower in Indie and Chicago, so it should allow for a relatively higher standard of living. My major concern is that the science of "big data" is an emerging field with potential for growth across many industries, while engineering is comparatively stable. Would I be better off pursuing a career in this new area, or sticking closer to what I have studied? I am tentatively leaning toward the second offer because I prefer Indie and the relocation package and signing bonus are generous. Since my experience with data science is limited to one internship, the risk in going with the second offer is that I may find I dislike that line of work later on or may underperform because of lack of formal training (hopefully not!). 

Another factor I've been considering is the impact of taking the lower salary to start with right out of school. Should I decide to seek out other opportunities a few years down the road in California for example, will companies offer me less without taking cost of living into account? 

Prior to all this consideration of job offers, I suppose that in many of the decisions I made with respect to my education, future income was the primary motivation. All throughout middle and high school I wanted nothing more than to be a musician. I played trumpet, trombone, euphonium, and tuba in various ensembles from orchestras and drum corps to jazz bands. Not to toot my own horn (pun intended), but I had a natural talent and worked hard at it. I was lucky to have loving parents who schlepped me around to rehearsals and performances across the country. They were always supportive of my passions growing up, until college admissions that is. Music will always be there to enjoy, but will not necessarily put food on the table. 

After a few long discussions with my parents, I decided to pursue an education in engineering. There's much better earning potential in engineering and I love math and problem solving, so it has been a good fit so far.  Fortunately, I've received scholarships, grants, and fellowships throughout my education and have not needed to take on a ton of debt. 

As I reflect back on my decisions and look forward to the next few months, I wonder if always prioritizing income over personal fulfillment and happiness is a good strategy. I recently read an article demonstrating that, in general, happiness increases with increased income up to about $85,000 and after that point there is diminishing returns. I should hear back about the salary negotiations from both offers soon. The deadline for making a decision is in two weeks. *Gulp* Time to become an adult. 

1 comment:

  1. As you are agonizing over this choice please keep in mind that (1) it is good to have such choices to make, not everyone is so fortunate, and (2) another way the humans depart from expected utility theory is that we tend to minimize regret after the fact. If you make a choice but then second-guess it over and over, that keeping you up at night, and if that wouldn't happen had you chosen the other path, then this choice probably isn't best for you.

    Also, based on your earlier post, there is the joint location choice problem of a married couple, which is harder than for an unattached single person. It means there are many other dimensions of the decision to consider and more than one decision maker so these things need to be talked through.

    Let me also take on you comment about becoming an adult. You are on the path, but it will take a while to get there. One of the reasons why this decision is agonizing to you is that you don't know your own preferences about what really matters - based on substantial experience. You don't have that experience yet. So there is a good deal of ignorance now and really no way of reducing that at present. If in 3 or 4 years you go through something similar, with a job relocation possibility presented to you, you will then have all that experience on the current job and the reflections to know what matters to you in a real way. Further, and this is the part about being adult, you'll also have the memory of how you made this choice and whether the criteria you used for making that were sensible or not. Gaining maturity and being more adult reconciles that sort of experience with future decisions.

    I do wish you good luck with this.

    * * * * *

    You have missed several blog posts. So there is the question of what you'd like me to do about that. Either send me an email with your thoughts on that or get me after the next class so we can chat about it for a few minutes.