Calculating your net worth is easy. First find the value of all your assets, including your bank accounts, cash lying around the house, investments, and major assets like real property. Next find the value of all your liabilities, including loans, credit card balances, bills you have to pay soon. Subtract the liabilities value from the assets value and you have your net worth. If you want more detail around that, here’s how to calculate your net worth, with discussion about nuances of the calculation.

Knowing your net worth is a great starting point for gaining control of your monetary situation with an eventual goal of financial independence. Net worth provides an answer to “Where are we now?” that is essential, especially when tracked over time, for feedback on whether your financial decisions are working to your benefit.

Net worth is only part of the story of a person’s full worth. You’ll also need to track your income and expenses to give yourself context for increases or decreases in your net worth month to month. But even this does not tell the complete story.

Financial capital is the monetary value of everything you own, your net worth, but human capital looks outside of just today’s assets and liabilities. Human capital has many definitions, but from a personal perspective, your human capital is your ability to earn income or increase your net worth in the future. A human resources department look at human capital from the business’s perspective, but that’s not what the intent is here.

Personal human capital much more difficult to measure than net worth or financial capital because it relies on qualitative analysis rather than quantitative analysis, and requires some educated guesses rather than provable measurements.

It’s possible to increase your human capital by achieving certain tasks or taking a specific approach to living your life. If it’s possible to increase something, there must be a way of measuring it to determine if you’re successful, and if so, how successful you are.

In general, the things that increase your human capital are also likely to increase your appeal to potential employers. Some companies refer to their employees as the “human capital” of the business, and that concept isn’t far from what I’m exploring.

These are the factors that will go into the formula for calculating your human capital. This is an open discussion; if you have any suggestions for tweaks, provide comments below, and we can discuss changes, and ultimately build an official human capital formula.

Education related to the field you’re pursuing. Some careers require more advanced degrees than others. For example, doctors complete a graduate medical program beyond earning a bachelor’s degree and have residency requirements before they can be placed in a full position; a teacher requires state certification, in some cases a master’s degree, and continuing education; a certified public accountant requires a degree or experience plus a successful certification.

In general, the more education you have, the more you have an ability to earn more money throughout your lifetime. The biggest gap is between those with just high school diplomas and those with a college education.

Let’s call this variable e_r (for education — related). Its value will be the years of education beyond high school that pertain directly to your current employment. It may be zero if your work is in a completely different field than your education.

Other education. It’s very common to pursue a career unrelated to your degree. Many friends studied one subject in college and either found a passion in another field or were faced with reality that seemed to required pursuing a career in a more lucrative position. Not all unrelated education are equal in terms of human capital, however. An education in music limits what you might be able to pursue other than an arts-related career if you aren’t already in an arts-related career.

The pertinence of the specific course of study decreases as you distance yourself from college through time, so at some point, it’s more relevant that you’ve earned a bachelor’s degree — any bachelor’s degree — than what you studied. This variable will be e_s (for education — supplemental).

Your remaining years of work. Your age plays a role in your human capital, but it’s related mostly to how many years you may be able to continue working, from either a physical or mental perspective. This is impossible to predict with certainty, but an estimate is fine. Unless you work at a job that is literally killing you slowly, it’s safe to say you can continue working until you’re at least 70 if you need to. So one possible approach is to subtract your current age from 70. This variable will be labeled y.

Your years of experience. The more you work in your field, the more of a chance you have of receiving jobs with more responsibility and higher compensation. Jump to a new field, and if your job function is different, you may have to work from the bottom again. Measured in years, your experience will be called x.

Your brand cultivation. If you’re well-known in your industry — perhaps you are a published author, speak at conferences, or are a household name — you are better positioned for earning a living in the future. Judging our own brand presence is difficult to do, and the more popular you seem to be, the more likely it is you’ll overestimate your importance. Neil Gaiman can probable call any television producer and get a job writing a script for writing any television show and his books are quite popular, but his talents may be overshadowed by the shadow of the brand of someone like Stephenie Meyer, whose agent can likely close a lucrative deal with one call.

And just ask any reality television star who was famous for fifteen minutes — your brand can disappear and lose relevancy in an instant, so this is something that can change frequently.

Just give yourself a brand cultivation value of 1 to 10, with 10 being a name you see in the media every day, and 2 being published for a niche audience, like a scientific journal. This will be the variable b, and I expect most people should rate themselves a 1 or a 2.

Your human network. How many people call you call out of the blue and ask for a favor, with a reasonable expectation that these people will help you to the best of their abilities? That’s the real value of a human network. If you can tell someone you need a job and they can come back with some suggestions, you’re able to make use of your human network. If you haven’t cultivated a network, your reach is smaller. This is similar to a “Klout” rating on Twitter; how influential are you?

Forget about your number of LinkedIn connections, Twitter followers, or Facebook friends. How many people can you really count on to be connected enough and willing to help you in a time of need? This is the value of your human network, or the variable n. It has a maximum of 60, because after about 60 the value of each additional connection will decrease.

Your involvement in a community. If you are involved in volunteering for an organization or active in your local economy, your human capital is higher. Involvement tends to increase your human network and your brand cultivation, but it has value just on its own. Consider how involved you are in activities outside of your job, on a scale of 1 to 10. This is the variable i.

Your drive for advancement. You will only move forward if you want to succeed. I’ve worked with people who were satisfied with where they were in life. They had no desire to earn more money, no desire to advance in their jobs, no desire for additional responsibilities. That’s a happy place to be, and if that’s you, you’re bound to stay roughly where you are. But if you’re fully driven to advance and are motivated to move forward with the income-earning aspect of your life, you can reach the potential that is promised by the other factors.

It’s not bad to not be driven towards advancement. Many people put a higher priority on other aspects of life, like family. There’s no judgment of values, but the drive to move forward greatly affects your human capital and earning potential. Rate your drive from 1 to 10, and label it with the variable d.

Your health. Health is important because it can affect your ability to earn income over your lifetime as well as your likelihood of facing a medical problem. Of course, someone completely healthy can have an accident that requires expensive medical care. Insurance companies do a good job of understanding someone’s health profile and likelihood of costs related to that person, but there’s no need to get that level of detail for our human capital calculation. All I would look for is a health rating, from 1, dying, to 10, in great shape with no real health risks.

Smokers receive a low rating while working out regularly would move the needle higher. This is the variable h.

Bonus points. Special skills and attributes are bound to affect your human capital. Use this list to define a value for the variable z, with a maximum value of 10. Add one point…

• … for each major language you speak mostly fluently, other than your primary language.
• … if you are an optimist rather than a pessimist.
• … if you are proficient at public speaking.
• … if you have a variety of interests outside of your career.
• … if you can play a musical instrument or are otherwise inclined towards a talent with arts.
• … if you are skilled in the forward-looking field (as an application developer, for example).
• … if you are able and willing to be flexible with your future goals and career paths.
• … if you are self-motivating and like to get things done.
• … if you have a strong support network of friends and family who help you emotionally, not necessarily with business
• … if you travel at least occasionally, exposing yourself to different cultures.

Now that we have all the variables, we need to put them into a formula that makes sense.

C_h = (y + 0.1d × (e_r + 0.5e_s + x + 5b + 0.25n + 0.5i + z) ) × Log(h)

The result, C_h, is a factor for human capital that can be applied to your income today to predict your future lifetime income.

Example

Let’s say a person for the example, Harry, has two years of post-college education relating to his field and four years of unrelated education. At the age of 35, he has at least another 35 years of work ahead of him if he does’t retire. He has 10 years of experience in his current role. He is relatively unknown in his field, but is well-respected within his organization, so his brand penetration is a value of 1. He has worked to build a network of colleagues and leaders in his field, and estimates there may be 10 people he can count on if he needed a professional favor.

He is moderately involved in his community and with his college alumni association, and rates himself a 5 in this area. He rates his health a 7 thanks to eating well and exercising regularly. let’s say Harry’s fully driven, with a score of 10 out of 10 in that category.

Harry receives 6 bonus points based on his answers to the above questions. Using the above calculation, his human capital, C_h, is 54.93.

Now that we have a number, we need to know if it’s good or bad. In the formula, brand cultivation is heavily weighted. If you’re famous, the possibilities are almost endless. I did limit the factor, though, because as I mentioned above, most people are likely to overestimate the importance of their own brand. A good result will be higher than the number of working years left (y) plus ten, a mediocre result would be around y,, and a bad result would be below y..

We can use the number to estimate the future income of a person, not taking inflation into account. With a result of 48.83 and a salary today of $50,000, we can roughly estimate Harry might earn $2,746,569 over the rest of his career. That takes into account his potential for growth, which relies on things like his brand strength, his health, his experience, and his attitude.

You can’t always just use your annual income as a guide, though; if your income is not sustainable or temporary, use a figure that is similar to what someone who does your work might earn if the extra circumstances weren’t applicable.

Is this accurate? It would require extensive research to determine if the income prediction is valid, but the purpose of the formula is to create a metric that can be used to track progress in the increase of human capital over time as well as person-to-person comparisons.

What do you think about the formula for human capital? Do you agree with the weightings? Are any factors missing?

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Chances are good that there is someone else in the world who can do your job better than you can, who is willing to work a lot harder, who can spend more time on the job, and who will accept a lower salary for the same position.

Thus is the inequity in the employment marketplace when living expenses are drastically different around the world. A recent article on CNN Money shows how this can result in favoritism. A business owner in the technology industry named Ola Ayeni, an immigrant from Nigeria, explains how he would rather hire foreigners than Americans. A link to this story appears at the bottom of this article.

On one hand, there’s the matter of cost. Ayeni said hiring the best American candidates can prove too expensive for a startup, because larger companies typically offer them better wages. Instead of settling for second-tier American candidates, which would put him at a competitive disadvantage, Ayeni would prefer better access to “Class-A” foreigners.

There’s also his view on their work ethic. Ayeni feels that many Americans take for granted their inherited economic opportunities, the kind he didn’t have back in Nigeria.

My ancestors were immigrants to this country. All of our ancestors were immigrants at one point, but my family, for the most part, was part of a massive wave of immigration from Eastern Europe in the late nineteenth century. Some became successful business owners while others were poor in Europe and remained relatively poor in the United States.

Regardless of their economic position, they worked hard. This was the only option. They needed to survive financially because the consequences of failure were dire. Going back to Europe was not an option. Several generations later, the stakes for my family aren’t nearly as high, and the same is true for most Americans whose families have been in the country for at least a few generations.

Immigration is a concern in this country during difficult economic times. The few jobs that are available go to those with strong work ethic and willingness to accept “competitive” salaries. As a result, to protect “our” jobs, the most economically vulnerable Americans would prefer the government make it difficult for immigrants to compete for the same jobs, with a message not much differentiated from Ausl&aunl;nder raus!

The strong work ethic of immigrants comes from the lack of options. When you need to work just to survive, when a family at home is counting on your income to live, not just thrive, there is a kind of motivation that is unfamiliar to most Americans. For a family living outside of the United States, each dollar sent can go much further to feed a family than it can go here, so workers here supporting those families can accept smaller salaries.

Should an experienced web applications developer earn a salary above $100,000? If he or his family has been in this country for a generation, that may be the salary he’s looking for. Recent immigrants just ask skilled and more motivated could be willing to take a lower salary, driving down the market range for that type of job, making it difficult for citizens with bigger financial needs to make a living in a career that was touted as being a great opportunity for long-term success.

Xenophobia is not a solution. No immigration policy will stop the progression of the economic future of this world over the next century, wherein the pool of employees for jobs encompasses people who are willing to work harder for less money. Companies, by the nature of capitalism are concerned with the bottom line and productivity, will continue to seek to save money in the cost of their human resources. Technology, more than immigration, opens the door for a competitive employment marketplace unlike anything the world has encountered before.

For the worker with a high cost of living and the kind of economic situation that doesn’t necessitate a life-or-death desire to constantly work at full capacity, some adjustment might be necessary to ensure long-term financial independence.

1. Become the employer.

Start a business; begin nurturing the entrepreneurial side of your personality. While unions have in the past helped to balance the power between employers and employees, this does not seem to be the direction in which our economic society is moving any longer. And with millions of people around the world needing jobs, no matter how they are treated by their employers, you can be sure that we will be living in an “employers’ market” for decades to come.

Stop looking for jobs and start creating them.

2. Work like your life depends on it.

In the nineties and the first decade of the new millennium, work/life balance was a popular catchphrase. We wanted to be able to maintain a comfortable position in the workplace while having the flexibility to make the most of our lives outside of the job. Companies still tout their positive attitude towards work/life balance as a benefit.

It is possible to work hard for eight hours, do a great job in the office, and leave your work behind at the end of day. It’s possible to have the flexibility to take care of personal issues during what would be considered the work day. The benefit even includes the flexibility of keeping a schedule different than the standard nine-to-five work day, and that’s even important in a globalized environment, where you have to deal with customers, for example, who live on the other side of the world.

The problem with maintaining this attitude is that there are many qualified individuals who are willing to put aside their concept of work/life balance. When there is a desperate need for earning money for basic survival, life can become work. Someone who wants to leave work early every Wednesday to be present for their children or care for a sick parent can’t compete with those willing to focus entirely on their occupation — for less money.

I strongly believe that the perception of productivity as a virtue is a form of corporate brainwashing to an extent. It’s the need for a company to get the most out of its human resources for as little expense as possible. I’ve seen this happen on the small scale, with required motivational seminars teaching employees how to give their all to the organization, and teaching employers how to convince their workers their jobs are worth making personal sacrifices.

As a result, there are people who believe their self-worth is defined on their ability to excel beyond their boss’s expectations, and that can be a motivating factor when the need for basic survival is no longer a large enough concern to inspire unending dedication to the job.

While I can’t support this manipulation personally, the problem today is that there are so many people willing to go above and beyond expectations that those who have any level of concern for life outside of their job can be cast aside for those who have no concerns other than the perception of their superiors. To compete with this reality, you need to lose yourself.

3. Engineer your life so you can survive on less.

Potential employees willing to accept lower levels of compensation drive down the market prices for employees in just about every industry. As an employer, would you pay someone $100,000 a year to do a job when you can pay someone just as talented, dedicated, educated, and experienced $50,000? And if you get better results from the employee earning $50,000, will you ever pay $100,000 again for the same job?

We tend to plan our finances as if our salary is going to increase year after year. Financial planners ask this question. Retirement planning software ask users to input a percentage of increase they expect for their income over the course of their lifetime. Salaries don’t rise on their own. Cost-of-living increases are generally a joke, and you have to compete hard with your coworkers for a pool of funds available for raises and bonuses.

Real salaries, after taking inflation into account, have not increased over the last decade. Over the long term, you’re going to earn less money year after year — certainly if you stay in the same job, and likely even if you progress in normal steps up a corporate ladder. As time goes on, more and more qualified employees accepting lower compensation will continue to hold your salary back.

You can find ways to make more of the money you’re earning. The adjustment you could make that has the most effect is changing your expectations for your living environment. Owning a house with surrounding property is a massive expense. It’s more than just the cost of the house and the price of the debt you’ll need to afford to buy the house. It’s the cost of maintenance and repairs, and the cost of living a life where you’re expected to maintain apparent financial parity with your neighbors.

As this is a global marketplace, consider moving your family somewhere in the world where your money will go much farther. Immigrants are coming to the United States to earn a better living, but if you can work for an American company while living somewhere else in the world where the cost of living is much lower, you can live your dream life on the same salary — just without immediate access to all the benefits that living in the United States has to offer.

How will you adjust to the fact that globalization is changing the employment marketplace?

CNN Money

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