Considering a pay cut for a career change

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gabbar
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Joined: Fri Aug 13, 2010 1:41 pm

Considering a pay cut for a career change

Post by gabbar »

Hello Bogleheads.
I am looking for some advice here.

I am currently going through business school (part-time MBA) and also working as a software developer (10 years of work exp.) in a start-up here in the San Francisco bay area. The main idea behind going through the MBA was to try to make a career change to the finance industry (equity or credit research, or even better, something on the buy side). While at school, I really enjoyed the finance courses, and felt that I had not only interest, but also good understanding of the concepts. However, I found the recruiting scene to be extremely difficult. After a decent amount of effort, I have landed an equity research job and I am about to finish the MBA soon.

However, taking this job would imply an approximate 30% pay cut, from my software dev role. I am wondering if its worth taking that kind of a pay cut.

If I make the career change -
1) I will be taking the first step towards a new career, something I really wanted to do.
2) The finance job is very stable, has good work-life balance.
3) Passionate about finance industry, and gut feeling that I am good at it as well. Not passionate about software development anymore, though I am good at it.
4) I will be taking a $40K pay cut in my base pay at 36 years of age ($145K -> $105K), wife doesn't work and I have two young kids.
5) New job is giving a sign-on bonus, which is equivalent to the pay reduction, so its not going to pinch in the first year.
6) Its a VC funded startup which might succeed (stock options can make good money) or fail (I can always get another software developer job in the SF bay area)
7) 3-4 week vacation at the finance job vs. 1-2 week vacation at the startup (policy is "take vacation as needed")
8) Other benefits (yearly bonus, 401k, healthcare) are equivalent at the two jobs.

Given how much work getting this finance job was, I don't know if I will keep looking for another finance opportunity. So wife supports the job change.
But I am torn. $105K (about $120K after bonus) will be tough to live on in the SF bay area.
Thanks for any input.
carolinaman
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Re: Considering a pay cut for a career change

Post by carolinaman »

I would suggest you take a longer term view of both job opportunities. What is your long term potential in the financial job? My guess, since you are inexperienced in finance, that it will be good as you gain more experience, and may eventually surpass the software developer job in pay and job level. You seem understandably torn between taking a job you are passionate about at a lower salary versus the status quo in a job you are less passionate about. Your hard earned MBA fits well with a finance career but does not do much for you as a software developer. However, the MBA would fit well with an IT management position. That may be an alternative to consider. However, I doubt you would have much more passion for the IT management job than you do as a software developer.

Ultimately, you have to make the best decision for you and your family. If you can make the salary work for your family budget, I would follow my passion. As you pointed out, if you change your mind later, you can always return to software development. Best wishes
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cheese_breath
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Re: Considering a pay cut for a career change

Post by cheese_breath »

This isn't entirely about money as you note in #3... "Passionate about finance industry, and gut feeling that I am good at it as well. Not passionate about software development anymore, though I am good at it." Which would you prefer to be doing for the next 25-30 years? I think you already know the answer.

So the real question is... are you and your family willing to make the short term sacrifices that may be necessary to make the change?

FYI, while it wasn't about a career change I once took a pay cut and vacation cut to move to a job with greater advancement potential than my current position.
The surest way to know the future is when it becomes the past.
Downtown
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Re: Considering a pay cut for a career change

Post by Downtown »

Based on your description, it seems to be a much better long-term decision to go with the finance position. I'd say bite the bullet and go for it! Good luck.

P.S. There is a limited window of opportunity (say 5 years max), where you can leverage your new MBA to effect real career change. Don't squander it.
fh2000
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Re: Considering a pay cut for a career change

Post by fh2000 »

gabbar wrote: After a decent amount of effort, I have landed an equity research job and I am about to finish the MBA soon.
Happy Holidays! Sounds like you have a great potential in this new job area. Maybe you can combine your software development skills in the new job, that might be even better.

If I was in your situation, I would also look into other areas of your life: does you wife have marketable skills so she can get back in work force after kids get in high school for example? Do you have a big mortgage? Life insurance? What is total retirement assets saved so far?

Basically, there are other priorities for your family that might influence your decision. If all the other areas are taken cared of, I would jump in both feet. But, if you do not have a backup or safety net set up, I would do those first.
stlutz
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Re: Considering a pay cut for a career change

Post by stlutz »

Combining the equity research and tech experience would make you hugely valuable in the finance industry. I'd take the new job while finding ways to make sure your tech skills don't languish too much.
Busting Myths
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Re: Considering a pay cut for a career change

Post by Busting Myths »

Make sure you understand what equities/credit "research" means if you are sell side. The concepts you learn in school, and what you are passionate about, may not be what you practice in this industry.
Dandy
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Re: Considering a pay cut for a career change

Post by Dandy »

Only you can really weigh the money issue properly. But the passion for finance and lack of it for software is a big deal for a 36 year old. Passion plus ability can really make a big difference in career and job/life satisfaction. Add to that a bit better life balance seems like a go for the finance job.

An ace in the hole may be your software experience. People with software/computer skills that couple that with another career can be very valuable. Also, having some valuable financial research experience should enable future jobs in that career a bit easier to obtain should you want or need to change jobs.

good luck
rayson
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Re: Considering a pay cut for a career change

Post by rayson »

Congratulations on your new job offer! You have received great advice on this thread. Go for it! One thing I'd caution is people get influenced by courses and peers they interact with at b-school. Real world careers aren't as sexy as people dream of while at b-school. My advice would be to leave your current job in good terms and not burn bridges, and treat your new job as a 1 year internship. At the end of first year, reassess if your passion for Finance career hasn't waned. If not, you can always move back into Tech industry. Good luck!
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Watty
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Re: Considering a pay cut for a career change

Post by Watty »

One you get some finance experience then there might be an opportunity to become some sort of high level system designer for a financial software company where you could use both of your skills.
But I am torn. $105K (about $120K after bonus) will be tough to live on in the SF bay area.
In a few years there may be better job opportunities in finance outside the Bay Area than in software development, at least without taking a large pay cut as a software developer.

It was a long time ago but when I was first starting out as a computer programmer I lived in the South Bay(Sunnyvale). One of the things I saw with some of the older people I worked with was that some of them had grown kids that did not have high paying jobs and the kids were in a real bad situation as far as being able to live on their own in the South Bay near their parents. Some of them were good kids, but for one reason or another they didn't go to or finish college and needed some extra time to figure out what they were going to do so moving away from their parents to a less expensive area wasn't a real good option.

If you have kids and eventually moving out of the Bay Area is an option for you then you might consider which career path would work best for that.

For comparison I've moved around a few times since then and I am now in Atlanta where the cost of living is reasonable. My son is in his mid 20's now and married and earlier this year he was able to buy his first house. It is in a good area and it needs some work but he was easily able to afford it since it cost about $140K. If I had stayed in the Bay Area and he was there I would think that they would be struggling to afford an apartment.
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tfb
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Re: Considering a pay cut for a career change

Post by tfb »

Busting Myths wrote:Make sure you understand what equities/credit "research" means if you are sell side. The concepts you learn in school, and what you are passionate about, may not be what you practice in this industry.
I agree, especially when it's a VC funded startup, not an established reputable firm in the industry.
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Topic Author
gabbar
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Re: Considering a pay cut for a career change

Post by gabbar »

Thanks for the feedback guys. It seems that most of the folks that posted have suggested following my passion and going towards the finance role (by taking the pay cut). Some points that were mentioned here, where I feel I can add clarification.

1) @johnep. MBA definitely fits with the finance career much better. In fact, its a hinderance to the software development career, as everyone feels that I will be taking the next step and doing something else post-MBA. I could move into a product/marketing role within my startup which alligns better with the MBA, but that will be a 360 turn as I focussed on the MBA with a finance career in mind.

2) @TFB. I think your response suggests that the finance firm is the startup. Sorry if I suggested that, but that's not the case. The finance firm a very established company that everyone on this board will definitely know. It's not going anywhere. My software company is the VC backed startup.

3) @Busting Myths. Its exactly what you are thinking, its a sell side job where I will be writing research reports. I would like to be more involved on the buy side in the future, but this is the job I could get given my past software dev. experience.

4) @Watty, I thought about moving to different geographical office in the future, if I stay with this same company beyond the first few years. The firm has a large office in Chicago and Dallas, so I could boost my salary power by moving. But, the tech analysts are in the SF office, so I would have to pick a different group (e.g. Dallas has the energy practise, Chicago has consumer and industrial groups). The company is headquartered in NYC, so that would be the easiest office to move to. These are all unknowns at this point, but moving is definitely possible.

5) @rayson. Of course, if I leave, I will leave on good terms.

6) @Downtown. I agree and believe the window of opportunity to make a big career change by using the MBA pretty much shuts within 2 years after the MBA.

7) @fh2000. No mortgage and no debt. I have been renting because I knew I might have to move to NYC post MBA. I wish however I had bought in the 2009-11 timeframe, as prices have gone up significantly here. Anyway, no student debt either since I used my savings to fund the MBA.

8) Multiple folks have mentioned that I could leverage my software skills if I move to finance. How, does knowing C++, Java, databases, cloud, software architecture etc. help in a finance firm? I am guessing they would have their own dedicated IT teams and I don't think I can straddle between the IT team and the analyst team. Anyway, I am not sure how would I leverage it.

Thanks again for your suggestions.
Busting Myths
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Re: Considering a pay cut for a career change

Post by Busting Myths »

gabbar wrote:
8) Multiple folks have mentioned that I could leverage my software skills if I move to finance. How, does knowing C++, Java, databases, cloud, software architecture etc. help in a finance firm? I am guessing they would have their own dedicated IT teams and I don't think I can straddle between the IT team and the analyst team. Anyway, I am not sure how would I leverage it.
HFT...Algo trading programming..probably more money than writing fluff pieces. Most of this stuff is based on open source coding anyway.
Valuethinker
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Re: Considering a pay cut for a career change

Post by Valuethinker »

gabbar wrote:Hello Bogleheads.
I am looking for some advice here.

I am currently going through business school (part-time MBA) and also working as a software developer (10 years of work exp.) in a start-up here in the San Francisco bay area. The main idea behind going through the MBA was to try to make a career change to the finance industry (equity or credit research, or even better, something on the buy side). While at school, I really enjoyed the finance courses, and felt that I had not only interest, but also good understanding of the concepts. However, I found the recruiting scene to be extremely difficult. After a decent amount of effort, I have landed an equity research job and I am about to finish the MBA soon.

However, taking this job would imply an approximate 30% pay cut, from my software dev role. I am wondering if its worth taking that kind of a pay cut.

If I make the career change -
1) I will be taking the first step towards a new career, something I really wanted to do.
2) The finance job is very stable, has good work-life balance.
3) Passionate about finance industry, and gut feeling that I am good at it as well. Not passionate about software development anymore, though I am good at it.
4) I will be taking a $40K pay cut in my base pay at 36 years of age ($145K -> $105K), wife doesn't work and I have two young kids.
5) New job is giving a sign-on bonus, which is equivalent to the pay reduction, so its not going to pinch in the first year.
6) Its a VC funded startup which might succeed (stock options can make good money) or fail (I can always get another software developer job in the SF bay area)
7) 3-4 week vacation at the finance job vs. 1-2 week vacation at the startup (policy is "take vacation as needed")
8) Other benefits (yearly bonus, 401k, healthcare) are equivalent at the two jobs.

Given how much work getting this finance job was, I don't know if I will keep looking for another finance opportunity. So wife supports the job change.
But I am torn. $105K (about $120K after bonus) will be tough to live on in the SF bay area.
Thanks for any input.
Make the change. That's easy. You need to get your foot in the door. Now or never. Your chance of getting a better offer diminishes as time goes by. Bite the bullet and live with less income for a while. In life we regret what we did not do, not what we did do.

Don't forget to sign up for the CFA. If you are staying in finance you'll need it. This is the job that impassions you.

Strange to talk about a VC funded startup though where you are an equity analyst? That does not quite sound right. You also talk about work-life balance: never seen a finance job with a healthy work-life balance, I have to say. Buy side, maybe, but even there, the guys get in at 7.15 these days...

Ahh, West Coast, right? You''ll start at 6am: New York is already open? The big portfolio managers are on the East Coast and in Europe.

Look forward to clocking up those Frequent Flier Miles. Vacations will be an excellent time to catch up on reading company report & accounts.

Remember, after year 2 it's all about your ranking: Institutional Investor, what used to be called Extel etc. You'll keep your job and get your promotions based on that ranking. Although Spitzer et al. has screwed things up, try to spend at least a little time with the bankers-- you'll see new and interesting companies before they get to market (have fun valuing Uber ;-)) and you'll learn a bit of how banking works, that side of the Chinese Wall. It will help in understanding the Sales & Syndication desk. Look forward to your first time as lead analyst for the bookrunner (lead) on an IPO... Remember though, bankers collect their fee and go away, equity analysts get to live with the institutional clients and the sales desk post IPO-- amidst the sharks, equity analysts can be the lunch.

Your next destination may well be Asia. There must be some very interesting things going on out there. Semiconductors and manuf we know, but also on the software side, and then you have Alibaba etc-- world's biggest online markets.

You succeed and your bonus will dwarf your salary issues now.

No you can't straddle the quant groups and equity research-- in my uninformed opinion. The Quant groups hire Phds to design the strategies, and programmers to execute them. You'd be well paid for a programmer, but it's not the pleasant environment of a startup-- people get yelled at, there's hierarchy etc. Maybe when you have your own hedge fund in 10-15 years you can design interesting quant strategies...

If you've got spare time in the first couple of years then 3 key words: CFA. Let me repeat. CFA. Again. CFA. I think you could do Level I in June, but you probably want to wait until end of year.
Last edited by Valuethinker on Fri Dec 26, 2014 7:45 am, edited 2 times in total.
Valuethinker
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Re: Considering a pay cut for a career change

Post by Valuethinker »

Busting Myths wrote:
gabbar wrote:
8) Multiple folks have mentioned that I could leverage my software skills if I move to finance. How, does knowing C++, Java, databases, cloud, software architecture etc. help in a finance firm? I am guessing they would have their own dedicated IT teams and I don't think I can straddle between the IT team and the analyst team. Anyway, I am not sure how would I leverage it.
HFT...Algo trading programming..probably more money than writing fluff pieces. Most of this stuff is based on open source coding anyway.
The market opportunity in HFT/ Algorithms is probably no longer there? At this point you are hiring Phd particle physicists to figure out how to get a signal faster from Chicago to NYC without using the Great Circle Route (because one of the HFT houses already owns the LOS transmission points)*. HFT is yesterday's story?


* am I imagining this, or did I not read that someone was trying to use the Tunnel Diode Effect to get round the lightspeed barrier on these communications? Maybe I just have been reading too much William Gibson.
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market timer
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Re: Considering a pay cut for a career change

Post by market timer »

gabbar wrote:8) Multiple folks have mentioned that I could leverage my software skills if I move to finance. How, does knowing C++, Java, databases, cloud, software architecture etc. help in a finance firm? I am guessing they would have their own dedicated IT teams and I don't think I can straddle between the IT team and the analyst team. Anyway, I am not sure how would I leverage it.
Some programming is very handy for automating routine tasks and performing data analysis.
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Watty
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Re: Considering a pay cut for a career change

Post by Watty »

Busting Myths wrote:
gabbar wrote:
8) Multiple folks have mentioned that I could leverage my software skills if I move to finance. How, does knowing C++, Java, databases, cloud, software architecture etc. help in a finance firm? I am guessing they would have their own dedicated IT teams and I don't think I can straddle between the IT team and the analyst team. Anyway, I am not sure how would I leverage it.
HFT...Algo trading programming..probably more money than writing fluff pieces. Most of this stuff is based on open source coding anyway.
There is a huge amount of work that goes into things like SOX and SEC compliance so someone with both finance and software development experience could fill a need at large corporations or consulting companies as well as software companies that write software for this. For example with a package like SAP there has to be someone that designs the next version or it or knows enough of both finance and computers to correctly implement it.
Valuethinker
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Re: Considering a pay cut for a career change

Post by Valuethinker »

gabbar wrote:

8) Multiple folks have mentioned that I could leverage my software skills if I move to finance. How, does knowing C++, Java, databases, cloud, software architecture etc. help in a finance firm? I am guessing they would have their own dedicated IT teams and I don't think I can straddle between the IT team and the analyst team. Anyway, I am not sure how would I leverage it.

Thanks again for your suggestions.

However you will sound like you know what you are talking about in front of clients. For a while, you *will* know what you are talking about-- then your skill set will get old (fast). If the CEO of a company you are covering etc. thinks you know what they are talking about, you'll have much better conversations-- ditto with your institutional clients.
Bob's not my name
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Re: Considering a pay cut for a career change

Post by Bob's not my name »

You are probably paying $15,000 in taxes (federal income tax, loss of child tax credits, payroll tax, state income tax), on your top $40,000 of income. Still leaves you $25,000 lighter, but that's the number you should be thinking about, not $40,000.

30% seems incorrect for two reasons: With bonuses included you're moving from $160,000 to $120,000, which is a 25% gross pay cut. When you take taxes into account, your net pay will decline by about 15%.

For a family like yours in California, once your gross income exceeds around $125,000 (depending on your 401k and TIRA contributions, etc.) you start to lose 40% of the margin to taxes: 25% federal nominal, 5% due to the child tax credit phaseout, 9% state (around 7% effective if you itemize), and medicare.
Topic Author
gabbar
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Re: Considering a pay cut for a career change

Post by gabbar »

Thanks a lot for the advice. I really appreciate it. I hadn't thought of the child tax credit expiry. Great point about being able to talk the talk with company management. Mostly going to say goodbye to the tech job. I will feel underpaid for a while, but looks like that is their standard package for incoming MBA students, being hired as Associates.
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