There’s something satisfying when looking at a bank statement. I know firsthand that this is more true when your balance is positive. The bottom line is a hard number; if it says $100, you know exactly how much money you have. The net worth, at least the way I count mine, is just as hard a number. The value of assets like cash and most typical investments is well-defined, as is the amount you owe on loans.
Net worth is an incomplete measurement of total financial worth as a living person, however. Human capital, your ability to increase your net worth in the future, is a bit harder to nail down, but it is an important factor to consider. There are formulas that might result in a number, but this tally will never be as well-defined as a balance on a bank statement.
On average, it’s sage to assume a healthy, smart twenty-year old with $1,000,000 to his name is in a better financial state than an sixty-five year-old with $1,000,000. Despite the same net worth and the same purchasing power on the same day, the younger individual’s human capital put him far in advance of the older individual.
Even if these two individuals have the same annual income, their financial reports don’t tell the full story. The young individual has decades to earn more income and improve his financial well-being. While the sixty-five year-old’s life isn’t over yet, there are fewer possibilities. It’s in any person’s best interest not only to earn as much as their potential, but to increase that potential.
Here are ten ways to increase your human capital.
1. Get more education. There will always be a discussion about whether certain levels of education are worth the investment, and many people fail to look at the full picture. You may hear about ROI (return on investment), but many people have a narrow definition. Your return is more than the salary you receive out of the gate, and it’s even more than all the income you would earn throughout your lifetime while practicing the specific skills you learned.
The process of continually seeking more education keeps your mind active and working hard, improves your ability to learn anything (cognitive skills), and opens your mind up to new ideas. These are all qualities that can increase your human capital.
2. Get more experience. If you believe that your job is confined to what happens between 9:00 AM and 5:00 PM, your opportunities for advancement might be similarly limited. I’m a strong proponent for not making your job the only thing that defines you, but developing a work ethic in which you expend effort and achieve at levels beyond what is asked of you, you can increase your human capital.
3. Become a versatile subject matter expert. Like Ron Howard, wear many hats. As a young actor, Ron knew what he really wanted to was direct, so he ensured he had the opportunity. He may not have the opportunity to be a highly-compensated leading man in a film, but he could be a highly-compensated producer. Rather than at film, strive to excel at multiple facets of your job. Learn other people’s functions and how to manage other people to increase your human capital.
4. Explore beyond your industry. When the housing market collapsed, thousands of mortgage brokers were forced out of their jobs. Many of these individuals didn’t have much training in any other industry. They had to trade in their six-figure commission-based incomes for low-wage sales training positions or opt to wait for the market to return. With skills in an industry that doesn’t fluctuate due to market cycles or other external forces, you will have a higher human capital than someone whose job will always be a victim of circumstances.
5. Get involved. If there is an issue you care about, seek organizations whose mission includes advancement of that issue. Volunteering for a non-profit organization or speaking out to express your passion is a good way to increase your value to the world and your human capital at the same time.
6. Improve your public speaking and presenting skills. If you are a good speaker or presenter, you’ll be several steps ahead of someone with the same knowledge and technical skills who does not know how to perform in front of an audience. While Toastmasters is the traditional path to improving public speaking skills, a better choice is acting. As an actor you learn two important aspects that might not be covered in normal public speaking: presence and emotional communication. These are add-on skills that increase your human capital.
7. Cultivate your human network. In order to boost your human capital, you need to focus on the people you know and meet in two ways: breadth and depth. The more people who know you and are familiar with your skills and interest, the more opportunities you will have to seek opportunities. But not only should you expand your network, you should cultivate your most important contacts. And if someone in your network asks you for help, say yes almost all of the time.
8. Publish your thoughts. I’m a strong proponent of writing online, the easiest way to publish your thoughts. Certain methods of doing so can result in growth in human capital. Keeping a journal of your daily activities is not one of these methods, unless you see journaling as a path to increased income. Most of the time, you should write within your field of expertise. And, unlike me, you should use the name you would like to be known professionally. As your writing increases in volume and quality, your human capital will increase as well.
9. Stay healthy. This is one I should take to heart. Find time to be physically active and eat healthy foods. While we all have stories of heavy smokers and drinkers who live beyond one hundred years, this is not the norm. If you want to increase your human capital, you want to behave in ways that are most likely to extend your life. In particular, you want to prolong the years of life during which you have an ability to earn income. Your health is not always entirely in your control, so you should control as many aspects as possible.
10. Start early. Whether you’re investing or looking to increase your human capital, you want to have time on your side as much as possible. When it comes to investing, longer time periods smooth out risk and offer opportunities for compounded returns; with human capital, the earlier you start, the more time you will have to earn income. Additionally, the younger you are, the easier it is to shift gears and start a new career if necessary. This ability is a significant factor in the measurement of human capital.
With an increased human capital, an ability to earn more income regardless of external forces, you are able to take fewer risks with your investments. Conversely, a lower level of human capital might result in unstable or less income over time, necessitating more risk in investments to achieve a higher return. Human capital is therefore an important part of your total financial value and should be factored in some form in addition to your other financial metrics like net worth, income, expenses, cash flow, and a variety of financial ratios.
How do you increase your human capital?
Photo: Pix of Stuff
Updated April 2, 2012 and originally published March 22, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.