Managing Future Income Risks


Pre-Post
The prompt asks to focus on the current decisions that we make with an eye towards the future and whether they were made to reduce income risk or because they seemed like good choices at that time. I feel like this prompt was chosen for us to reflect on how we make decisions for the future and for us to see the many factors that are uncertain in the future. Because there are many uncertainties we must ask how we try to reduce our income risks now to account for the possible uncertainties. We must also be aware if the decisions we make now are more self-protection decisions or self-insurance decisions are given our current state. This means that if we are in debt we will probably make self-insurance decisions over self-protection decisions for the future since we are focusing on getting out of debt. But by focusing on getting out of debt we are still making more self-protection decisions for the future because we are getting out of debt for the future.

Post
While reflecting on the decisions I have made for the future it is interesting to look at how I handled the decisions I have made to try and reduce my income risk in the future. Starting off with my major choice, I started in chemical engineering mainly because I was given the impression that a job in chemical engineering after college would pay well and is relatively a stable job. I was mainly thinking about trying to maximize my potential salary income after college along with having a stable job. Once I started the major I realized that a lot of the classes were very hard and my G.P.A. was not good enough to get into the higher paying job in  the industry, which are usually jobs in the oil industry. I  figured that in order to get a job in chemical engineering that will pay the average salary, $75,000 - $80,000 a year,  after college I would need to get an internship of some sort. After my freshmen year I have tried to apply to several internships but was able to find after my freshmen year, so I decided to get ahead in my major and took summer classes at UIC because the engineering classes there were easier and I would have to the possibility to graduate a semester early after those summer courses or have the possibility of getting a Co-Op and graduating on time.

After my sophomore year, I was able to get a summer internship at my father’s friend’s engineering company. This was a small engineering company that was not like typical chemical engineering jobs because it focused on engineering consulting rather than day to day production operations. My main purpose in doing this internship was to use it at a springboard to get other internships/ Co-Ops that were more focused around a production plant setting. This drove me to apply to around 150 internships/Co-Ops in my Junior year. I was finally able to get a Co-Op at Ashland Chemicals in Calvert City, Kentucky. The problem was that while I was applying to all of these jobs my grades too a big hit my first semester of junior year. I found out I would be put on academic probation after that semester, but because I was accepted in for a full year Co-Op I would be put on probation once I got back to campus at the end of that year.

After the first semester of my Co-Op, I realized I did not really like living in the middle of nowhere since I was born and raised in the city of Chicago. I decided to go back to school the following semester and take on the academic probation requirements. Midway through the semester I still applied to some internships in Chemical engineering at the career fair and tried to get internships that would be located in larger cities. I ended up getting another internship offer at Louis Dreyfus Company for the following summer but it ended up being in the middle of nowhere Indiana. While offered this internship I also switched from engineering to double majoring in chemistry and economics. The reason I switched was partly that I did not see myself meeting the probation requirements. I choose to major in chemistry because I was only two more courses from obtaining that degree I believe that having a technical degree would help me find a semi-high paying job after college. I decided to also double major with an economics degree because I have always had a passion for economics and I also felt that I would be able to get a job in finance that could possibly pay more mid-career than engineering  since the salary for an engineer somewhat plateaus after mid-career.

Now that I finished my internship over the summer I am more content about the decisions I have made. I was able to get two job offers from the company I worked for, one in their engineering department and one in their commodity trading department. I also have several offers and potential job prospects in a different variety of fields like engineering, production management, technical sales, and trading. I plan on making a decision on the job that I accept based on a different variety of factors. One will be on the type of base salary and if there is bonuses and commission. I would be more inclined to accept a job with a base salary that has uncapped commission possibilities over a hiring pay base salary with no commission. Another criterion is the potential work location and weather I will be happy working in the area where the company is located. Another aspect I am considering is the opportunity for growth in the company and the potential to work my way up the corporate ladder. The last criteria I have is whether the job and industry I plan to work for is usually stable and the company has a general stable outlook for the future. For me it is very hard to evaluate all of these factors because it is hard to predict future outcomes.

Other ways that I and trying to reduce income risks is by playing the stock market and diversifying my assets. So far most of the money I have saved up is in the stock market and I invest in a lot of blue-chip stocks but also try to invest in secure ETFs. I also utilized my company’s 401K matching plan for interns last summer and just transferred that into a Roth IRA. I plan on getting my real-estate license and become a relate agent as a side hustle after college. One thing I am still worried about though is that the future is very unpredictable. What happens when I get married and have children and what would the costs of that been. College costs are increasing and saving for college and retire might be hard depending on when I get married. Right now I have been with my girlfriend for about a year and one day I could see myself marrying her but she still has two years left of school. After that, she plans on going to medical school but as we know life changes. There are so many factors to consider in the future to try and make yourself “stable” and because the future is so unpredictable we can only try to do things in the present that we think will help us in the future.

Comments

  1. Professor ArvanOctober 18, 2019 at 10:51 AM

    I'm glad you took me up on the suggestion I made in class about the blogging - writing a paragraph to explain the purpose of the prompt. I do want to note an additional purpose is to prepare the class for the models we will be studying over the next several weeks.

    Let me now try to reframe your initial choices - of major and internships. You based these on end-of-pipe factors (what would happen after you graduate) without much consideration for within-pipe factors (whether the study of chemical engineering somehow fit you or not). If I'm understanding this correctly you get admitted by college, in this case Engineering, but you have to declare a major, in your case Chemical Engineering. But saying this I'm now recalling that Chemical Engineering is in LAS. So did you consider applying for something else in the College of Engineering instead?

    Even though it proved undesirable for you, I think experimenting with location choice of work is actually an interesting way to mitigate some risk. You didn't mention geographic differences in cost of living. That matters - quite a lot. You also didn't mention whether your had any classmates from Illinois who had the same sort of internship possibilities as you and, if they did, how they fared. In other words, do some students find the path that you took and didn't like a good fit for them. If so, it would be interesting to note why that is and what about them made chemical engineering a good choice for them.

    In your penultimate paragraph you talked about criteria you will use for accepting job offers. It sounded like underlying those criteria was a sense that you will be at the company for a while. and make your career there. Maybe that's a good assumption, but possibly you will be on the job market again a couple of years hence. From my casual observations of students who have taken my class that sort of job change is not that unusual. If it does happen, you might ask whether anything you are doing now can prepare you for that better.

    Regarding your last paragraph, let me say that I was a bit confused because you talked about debt in the first paragraph, but then you talked about managing your portfolio. Do you have both? Let me make some observations that somebody your age should consider. You need to save for the near term future as much as for retirement and you have to come to a sensible balance between those two. If you will eventually buy and not rent, you will need money for a downpayment, and you will build equity in your home over time. That is a form of saving. I'm not going to comment at all on your personal life - it's none of my business - other than to note that prior to marriage each person has their own finance while after marriage then there are family finances. Some life decisions are based on the latter. And arguing about money is a leading reason for divorce. So there are other risks in life that are ties to the income risks.

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    Replies
    1. John Maynard KeynesOctober 21, 2019 at 8:11 AM

      Thanks for your response. To answer your fist question about chemical engineering I really enjoyed chemistry in high but also felt the pressure of my parents to do chemical engineering. I went to UIUC because it was the cheapest 4 year option for my family and their engineering program at UIUC is top tier. I was not necessarily considering other engineering majors at the time of my application but when I went in my freshmen year I found out it is very hard to switch to the engineering college is your are in LAS. Also at the time Chemical Engineers had the second highest projected starting salary, first was CS/Computer Engineering and I knew I was not going to like that field.

      For geographic costs of living the places I was interning at Co-Oping had a way lower costs then some of the cities but they also paid their engineers slightly less than locations where the cost was higher. A lot of my friends took the a similar path then I but stayed in chemical engineering but a lot of them were from suburbs of Chicago and small towns in Illinois so they were used to living in small towns. I feel like the average salary for engineering in Chicago is higher because of the cost of living, but it I were to get a job in Chicago I would also be able to live with my parents for a few years to save up even more.

      No I do not have any debt but I mentioned debt in the pre-post to get a sense of where you want the post to kind of go for many then I took off my own experiences. I have been saving for the near future more than retirement. Once I start working I plan on saving more for retirement to even out what I have already saved for the near future. As for housing I plan on putting a down payment on a house after a year of working and only if the housing market goes down. I feel like buying a house instead of renting is a good investment is the interest rates are low and I could take some of the money I would have put in the house and put in in a mutual fund of etf.

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