My $50K, 15-Month Master's in Finance in 5 Minutes
Here's a 5-minute summary of what you learn in graduate business school.
After undergrad, many folks consider going to business school to make themselves more competitive in the job market or learn special skills needed to succeed in business. To help make your decision more informed, I’d recommend reading this 5-minute grad school alternative. A couple of years ago, I went to business school to get a master’s in finance, and I’d like to boil the $50K price tag and 15-month time commitment down to a 5-minute read. You may be thinking, “I want a master’s in business administration (MBA), or so this doesn’t really apply.” Maybe, but hear me out. This list may convince you otherwise. Don’t forget to subscribe first!
Here are the main concepts you need to know in order of importance:
People are Everything
You can literally forgo business school if you’re a master networker. If people like you, you’ll get a job, and people will do business with you. If you think your classes are the most important thing, you’re probably doing something wrong. Yeah, learning the curriculum is essential, but if no one knows you because you lived in the library drowning in books, nothing else matters. Your fellow students won’t help get you jobs or do business with you. So next time you have an opportunity to meet someone who can help you, stop studying, take the B, and go make a connection.
Time Value of Money (TVM)
This is probably the most important financial concept to learn, and the entire program seeks to make you a master at this. TVM involves understanding what money is worth at different points in time. If I offered you a dollar today as opposed to a dollar in a year from now, you’d probably take the dollar now. Why? It’s because you’ll receive the benefit of having that dollar sooner. You’ll be able to buy your favorite candy bar now as opposed to a year from now.
This is a simplified version of what all TVM means, but imagine having more periods, maybe 10 years or 20 years? Or imagine trying to figure out what $1 million is worth instead of just a $1? It’s literally all the same. Just because the number is more significant doesn’t mean the concepts change. All you have to do is add more zeros!
Risk is a pretty important thing to learn in the finance world and in life. Risk is nothing more than a fancy term for uncertainty or simply not being sure about a future event. I’d suggest you get comfortable with risk and not always knowing what you’re doing or how the future will look. Having this mindset will put you in an excellent place to start making the unknown known. A big part of what finance people do is predict everything money, like determining what something will be worth in the future or the likelihood that someone won’t pay you.
Learning what is out there is essential. Usually, when people start investing, they don’t really understand all of the different options. Every type of investment can be boiled down to a list of three categories:
Debt — Debt investments are the easiest to understand and involve an “I owe you (IOU),” meaning someone owes you something, usually interest. Interest is just a fancy term that the finance community made up that is simply the fee you pay (or receive) whenever you borrow someone else’s money or give them money to use. A great example of debt investment is a loan on the house. When you buy a home, you usually get a bank loan to pay for it, then pay the bank back over a long time. Being that you are borrowing money, you have to pay a fee called interest. A debt investment can be created by any two parties. Whether it’s a bank and you, you and a company, or a company and a government, it doesn’t matter.
Equity — Equity investments are a little harder to understand and don’t involve an IOU as debt investments do. There is no guarantee that the other party has to pay you back, but one super sweet thing you get is “ownership.” Ownership in something is essential and is the primary reason why rich people keep getting rich. Generally, things tend to be worth more in the future, but not all the time (um… WeWork…).
Derivatives — Unless you plan to work in derivatives, I wouldn’t even worry about this. It’s such a complex topic, and so many finance people think it’s like the pinnacle of what they are supposed to learn. It’s important to know they exist, but I would stay out of the details unless you plan to work with them frequently. If you understand risk really well, you’re 90% of the way to understanding derivatives.
Business Activity Types (or Corporate Finance)
Businesses basically run the world and do many different things. It doesn’t matter if you’re talking about a for-profit, a non-profit, a government, or even a person. They all do stuff with money. Corporate finance involves understanding these activities to literally not mess them up. Here’s a quick list of what you need to know:
General business activities — Buying supplies, hiring people, or having customers pay you are all included in general business activities. The best way I found to understand these are to look at your own life. Do you have a house? Probably. Businesses need homes too, and they call them headquarters. Different terms, but the process is roughly the same. Understanding general business activities help teach you accounting and automatically puts you in the top 50% of all finance people. It’s absolutely crazy how many professionals don’t understand how businesses work.
Buying and selling other companies — Wall Street came up with another fancy name called “mergers and acquisitions (or M&A).” It’s literally like getting married and putting your finances together, but on a larger scale. I say learning the general process of buying and selling companies is important. Mostly related to the effect on future value.
Raising money — Learning how businesses grow cash is beneficial for a variety of reasons. You’ll learn how companies take ideas and try to turn them into profitable or successful activities. Raising money can involve issuing debt or equity investments. A common way for companies to raise a lot of money is through an initial public offering (IPO). An IPO occurs when a company first gets listed on a stock exchange. There are many ways to raise money too. Crowdfunding is another newer example for companies that aren’t really big, and it involves raising money from the organization’s network of people.
Other Thoughts to Note
Leave the hardcore accounting to the accountants. You’ll learn some as a byproduct of understanding TVM, investments, and corporate finance. Just stay focused on meeting people, keeping risk in check, and predicting the future. Excel? Maybe, you’ll probably learn it, but I feel like Excel is the same as sending an email now. You don’t really need to put “Microsoft Office” on your resume. Everyone does that, and you’re not everyone. Learn something more valuable, like Microsoft PowerBI or Python. Most finance programs don’t even teach programming or how to work with large datasets. So you’ll probably have to learn that independently. Most faculty still do things in spreadsheets that were created after the 2008 Financial Crisis. Take some Coursera courses, but understand what you need to know or want to learn.
Ah, one more thing I forgot. Don’t think you’re going to become a stock or investment guru after getting your degree. The has reality is that it is tough to make more money than the “market” (Another fancy name for owning everything that exists. The S&P500 is a proxy for the market in the United States). There are ways to buy the S&P 500, but until you really know what you’re doing, I’d suggest becoming friends with the market and set your wild investment tips to the side.
Thanks for Reading!
This article was written by Garrett Ramela and his experience at American University. Don’t forget to share this with your friends! Also, if you enjoyed reading this article and want to check out more similar content. Head over to Millennial Investments to learn more wealth building tips and tricks! Happy reading!