Investing in Yourself
How to Turn Human Capital into Financial Capital
By Michael Dow
Every month we look at different ways to make your money work for you. Most of the time we're talking about stocks, bonds, ETFs, mutual funds, real estate, precious metals and so on and so forth. That stuff is all wonderful but actually there is one asset class that is absolutely unparalleled when it comes to doubling, tripling and quadrupling your cash flow over the course of your life. When you've mastered this form of investing you will realise that everyone who has ever told you that the most sure-fire way to get rich is investing in real estate was downright wrong. We are not talking here about capital investments, but rather human capital investments. By properly investing in ourselves we can generate far higher returns than any piece of real estate, stock market or mutual fund in the history of mankind. Like any other investment, all it requires is some of your time, effort and money.
What most people don't realise is that human beings are not all that different from stocks. Namely, we have an intrinsic value that is primarily based on how profitable we are. Then there is the value that is placed on by the market. Some of us are hidden gems that are undervalued because the market hasn't yet recognised what we can bring to the table. Others round about where they should whilst other people's services - either because they got lucky or they work for the public sector where the laws of supply and demand are somewhat irrelevant - are bought at a higher price than they probably should be.
Fortunately in the real economy people don't often throw money at people because a magazine article or brokerage firm says it's a good idea. Employers and customers alike tend to be far better at valuing people than they do stock markets. That might be quite a daunting reality for some people, but those of us who recognise this fact of life can use it to our advantage. This is where investing in ourselves becomes important. The good news is that there are many different ways to make an astronomical return by doing this. Some of them require very little money to get started. It doesn't taking much more than a bit of effort and a few good habits to take care of our health, for example, and the returns over a lifespan are phenomenal.
Education is the ultimate way to cultivate human capital if people invest in it properly. It is true that the cost of learning is going up. Then again, as Warren Buffett once said, "if you think education is expensive, you should try ignorance". In this information age the failure to invest time, money and effort in valuable education is a very bad money move indeed. Another great way to lose your money is failing to consider the risk-reward ratio before embarking on a course. That's why so many people who complete a degree in art history find themselves in a lot of debt and not much to show for it. In other words, they end up with a certificate that is a liability, as opposed to an asset that can help them to produce a greater cash flow. That doesn't mean an art history graduate is completely worthless in the job market but there are many other academic qualifications that generally have much more upside.
Admittedly it isn't cheap to do a degree anywhere these days but fortunately there are some low cost options that can greatly increase our market value. If you look hard enough it's possible to find well priced online or evening courses in everything from IT to human resource management. This being the case it is amazing how many people are missing out on an opportunity to enhance their most basic of skills. Putting a bit of time aside each week to brush up on our writing, public speaking, maths, time management and all the other core selling points of a good employee in today's world pays off bigtime.
Most companies these days offer their staff an array of opportunities to gain extra skills that would increase their value. It doesn't always involve taking a course on your day off. Sometimes they will offer on-the-job training schemes that may not lead to a salary increase but will give the resume a great boost. Failing that you could always spend some of your hard earned spare time at the library reading up on your industry absolutely free of charge. World renowned life coach and sales guru Brian Tracy points out that "If you read only one book per month that will put you into the top 1% of income earners in our society. But if you read one book per week, 50 books per year, that will make you one of the best educated, smartest, most capable and highest paid people in your field. It will transform your life".
One thing that Robert Kiyosaki's Rich Dad Poor Dad series teaches us is that financial education is just as important, if not more important than formal education. Buying the right books and attending a few seminars on the basics of personal finance is sure to boost your earning power. Investing a bit of time to understand how the economy works, how businesses grow and what factors affect the property market will make your journey to financial independence much smoother. The principles, analytical models and 'tricks of the trade' that you will pick up along the way come in very handy when it comes to making those all-important investment decisions. Not only will you be better at spotting money making opportunities but you will also become more skilled at preserving your wealth.
If you are still not convinced that investing in yourself is worth the hassle then there is yet another big reason why everyone reading this article should go forth and multiply their earning potential. Specifically it is the fact that the government can't tax you for enhancing your human capital. Sure they can take a chunk out of your pay rise, just as they can tax your dividends. The difference though is that they can't sting you during the appreciation process. Compare that to what happens when one of your stock or a piece of real estate goes through the roof. By investing in yourself you are essentially building a cash-generating asset that is untaxable and has unlimited growth potential. If that isn't enough of an incentive then nothing is.
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