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Boost Your Human Capital: Cultivate Your Network

This article was written by Flexo in Career and Work. 4 comments.

While saving money, reducing expenses, and earning income all help improve your net worth, these tactics often ignore the larger picture. Improving your personal human capital is like a form of insurance; you’re protecting your ability to increase your net worth over a long period of time. Boosting your human capital through gaining education, adding variety to your experiences, and cultivating your network can help to ensure you’re in a better financial position in the future.

I’m what Carl Jung would call an Introvert. To be more specific, in the variety of corporate psychological analyses I’ve participated in over the past fifteen years, my result is generally halfway between Introvert and Extravert, though I identify more with the Introvert qualities. This doesn’t mean I always prefer to work by myself or spend time alone; it means that I can draw energy from independent thinking. I am comfortable in social situations with large groups of people as well as working in teams, but rather than drawing energy from this type of socialization, it draws energy from me.

People As a result of this energy drain, I haven’t put as much effort into networking as an independent business owner like myself should have. I’ve been building online communities of various types since at least 1990, but I haven’t done a great job with maintaining relationships over time. From a social perspective, I prefer to have a few close contacts than a large number of acquaintances. Not only does this make it difficult for people to get close to me, but it has perhaps damaged my personal human capital.

When to say yes

The overworked and overscheduled business owner receives standard advice: “Know when to say no.” One person cannot do everything, and those who have shown themselves to be experts are often faced with ceaseless requests for assistance. Focusing effort on the 20 percent of requests that have 80 percent of the most relevance to the expert’s own needs, an approach that borrows from the Pareto principle, might benefit from lighter schedules but might miss the opportunity to have a significant effect on someone’s life.

Keeping in mind that it could be damaging to over-promise and under-deliver, I take the approach of responding to as many requests as possible, looking at each as an opportunity to connect with someone I may not know about.

Both depth and breadth are important

I mentioned above that I’m more comfortable with fewer close relationships than more superficial connections. This limits my capacity for improving my overall human capital. The most beneficial network contains both deep relationships and a wide network.

An individual beginning a new business as a landlord or real estate investor is a good example of someone whose human capital increases significantly with a wide network. In order for an investment to be profitable, unless the investor intends to spend all of his time and effort handling every detail regarding the property, he or she needs to know a variety of people in positions to help. While one can find plumbers, contractors, painters, property managers, and real estate agents by searching online, the best help — and the better deals — would come from people the investor knows personally. Recommendations from friends or other investors could fill in some holes in the network, and every interaction through a recommendation can grow this network.

For someone building a photography business, initial help could come from the deeper relationships in the individual’s inner circle, those who would trust the photographer enough to help build an initial portfolio and be willing to recommend the photographer to friends in the early stages of the business.

The value of online networking tools

LinkedIn has become the one location for the best business-focused networking. Despite this, I am not convinced that online-only networking — or just having a massive contact list — is valuable. I receive connection requests every day from people I’ve never communicated with, whether in person or through email. I don’t see the benefit of growing the list just to have a high connection count, just like the purpose of earning more money or reducing expenses is not just to have a larger bank balance.

As LinkedIn has grown, more features seem to invite unwanted messages and self-aggrandizement. I see LinkedIn as an effective contact management system, where you can be sure your most important contacts also offer their latest information. This is much more efficient than maintaining a Little Black Book when contacts frequently change jobs, positions, email addresses, and phone numbers.

Professional organizations

Starting in college, you can join professional organizations that provide opportunities to expand your network and open opportunities that might not have been available otherwise. As a music education major, I re-established the university’s collegiate chapter of a major national organization related to the field. Had I remained in this field, I would have been able to draw upon the contacts I established at this organization for professional opportunities. (You never know what path your life might take, but it doesn’t hurt to prepare for the path you intend to take at any particular time.)

In my career as an independent financial blogger, it was rewarding to establish an informal association of like-minded writers. As a small, tightly-knit group, we could easily share ideas and best practices to help our budding businesses grow.

Mentoring relationships

Focusing on the depth rather than breadth of connections, the relationship between a mentor and protege can be a helpful for building personal human capital. Seeking a respected individual in your field to play the role of a mentor can help you have an avenue for asking direct questions where the answers will help you reach your goals. No matter where you are in life, there is always someone from whom you can learn. Even the most successful individuals in the world find time to speak to people they respect to come away from a discussion with more ideas or tools.

At the same time, being a mentor can be very rewarding. Often, a protege asks a question that forces you to solidify your thoughts and opinions. By talking through your approach to any particular issue helps you think about details that may seem self-explanatory. In the variety of relationships in which I’ve served as a mentor, I’ve found that I’ve learned more about myself and my life and business have both improved as a result.

One danger in this relationship is being defined by the role in nominal terms. Mentors can learn from proteges. Everyone has something to offer.

Five tips for building an effective human network

Be authentic. Don’t present yourself as someone you’re not.
Reciprocate. Don’t take more from a relationship than you’re prepared to give. Say yes often.
Focus on depth and breadth. Don’t just be a contact collector. Add depth to the relationships that matter most.
Facilitate connections. Rather than focusing solely on the relationships that will help you, note where your contacts will benefit from building a relationship with your other connections.
Follow meetings with a message. Responding or connecting quickly after a meeting will help build relationships faster.

Do you have any additional tips for networking? What has worked well for you?

Photo: TheBigTouffe

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Boost Your Human Capital: Get Involved and Volunteer

This article was written by Flexo in Career and Work. 9 comments.

Consider your personal human capital as an addendum to your net worth when evaluating your overall worth. While your net worth is a good financial measurement, your human capital is a good predictor of how you’ll handle opportunities to grow in the future. In an unsteady economy, those with better developed human capital have an advantage. One way to increase your human capital is to volunteer your time with organizations.

Recently, I wrote about gaining more experience as a way of boosting your human capital, making your skills more valuable to others, particularly potential employers or clients. Kyle from Amateur Asset Allocator promptly offered this feedback on growing human capital:

Volunteer work! Most charitable organizations are desperate for volunteers so it’s not incredibly difficult to get yourself in charge of something, even if it’s something small.

Habitat for Humanity The organizations requiring volunteers benefit greatly from passionate individuals who are ready to get to work. Without volunteers, many non-profit organizations, including religious institutions, would never be able to provide services as broadly or as deeply as they’d like. These organizations are usually not businesses that create revenue by selling products to a consumer, and the opportunity to generate income is low. Relying on donations or government support for funding, volunteers play a vital role. The bigger an organization’s the mission, the more volunteers they’ll need to get the work done.

This demand for volunteers creates a great opportunity for those willing to dedicate time to the advancement of a cause. Volunteering is always the most beneficial when you can align yourself with an organization whose mission matches your values.

If you are religious, your church, synagogue, or mosque could have opportunities for you.
If you are driven to help find a cure for a disease, there is likely an organization that promotes awareness or raises funds with the intent of helping affected families and encouraging research.
For those passionate about arts, there are likely several non-profits in your proximity that relate directly to your passion.
Social issues like poverty are also served by non-profit organizations.

Gain leadership experience

If the boss at your day job undervalues you work and is reluctant to give you more responsibility, you’ll benefit from the opportunities that volunteering might present you. Since demand is high, any organization would value a motivated volunteer ready to help organize other volunteers, run events or manage campaigns. There are always openings for volunteers who are not seeking much responsibility, like those who help direct traffic at an event, but it won’t be difficult for a motivated volunteer to prove himself or herself as someone who can take responsibilities that require more skills.

I had a discussion yesterday with a friend whose husband has been having trouble moving to the next level in his career. The next level would be a management position, and he’s become a victim of the vicious experience cycle: He feels he won’t be hired as a manager without management experience, but he can’t gain management experience until he’s hired as a manager. This is always a tough barrier, but one solution is to volunteer for an organization. In many cases, you can accept leadership positions as a volunteer without having official experience, as long as you are capable and talented.

If you are a successful leader in your work as a volunteer, you can feel safe highlighting this work on your résumé, increasing your chances of receiving an offer for your first leadership position within your company or your career. This is even better if your volunteer work is somewhat related to your vocation.

Increase your confidence

Don’t be surprised if you find yourself more self-confident after volunteering for a cause about which you’re passionate, particularly if you do have a leadership position. A side effect of many organizations’ missions is making a difference in someone’s life, and when you are a part of an organization that makes a difference, regardless of whether you have a leadership role, you feel better about yourself. Self-confidence, like other aspects of your human capital, is difficult to measure. It’s not a skill you can put on your résumé. It is, however, an attitude that permeates what you do, and it’s something that other people, including a hiring manager or a client, can sense.

Expand your network

Cultivating your network of colleagues, acquaintances, and friends is a major contribution to your overall human capital, and I’ll be addressing this in more detail in a following article. Volunteer work often introduces you to people you wouldn’t otherwise meet. This is a great advantage from a business as well as social perspective. By associating with a wide variety of contacts, you’ll begin to see connections between the people you know. It’s easy to see this on social networks where you can chart your circle of friends. As your network expands, you’ll see that people you don’t expect to know each other do, proving the truth of the cliché: “it’s a small world, after all.”

While these connections help understand your friends and colleagues better, broad networks that cross industries and interests can result in your having someone to turn to in a wide variety of situations. If you need advice on starting a business, chances are you know someone who has been through the process of getting her own business off the ground. With a broad network, whether you need a photographer or a plumber, someone in your network can help, either directly or provide a recommendation. Likewise, the bigger your network, the more you’ll be seen as a helpful resource.

Find the right opportunity

The first thing you should consider when planing to volunteer is how much time you can commit. One of the biggest problems that organizations face is a lack of quality volunteers, and by over-promising or making a commitment you can’t keep can increase the difficulty of operations for an organization you’re trying to assist.

Consider your passions. This isn’t your job. Since you’re not being compensated in traditional monetary form for your work, ensure you’re going to enjoy and find meaning in the work that you’ll be doing. The wok itself might not be fun — stuffing envelopes with fundraising mailers comes to mind — but if the organization stands for something you support, the work will feel worthwhile.

Volunteering can be expensive. Look at the costs. If you need to travel 100 miles three days a week just to get to the location where your volunteering takes place, you’ll be spending time to commute and money to travel, neither of which can usually be reimbursed. (Time is never reimbursable; expenses are only reimbursable if your organization happens to be able to afford that luxury.)

Have you ever volunteered for an organization? What were your experiences?

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Personal Balance Sheet, April 2010 ($356,832, +4.5%)

This article was written by Flexo in Monthly Update. 46 comments.

About a decade ago, I realized that I needed to track my spending down to the dollar, if not to the penny, to get a grip on my financial condition. It was the start of a long journey for me, one which saw me get out of credit card debt, start earning money, and getting my life in gear overall. I also started blogging about my finances to keep myself accountable.

I never expected that blogging would help me become more financially secure. I still don’t earn much money in my day job. That income alone would hardly allow me to afford to live an apartment without a roommate. But, here we are. I don’t track my finances as diligently any more because I tend to make better decisions in general. I do, however, check in every month in order to post in my continuing series of net worth reports.

The month of April is usually one where my net worth will take a dip as I pay a high tax bill. That worked out differently this year thanks to re-classifying the side income I earn. As a result, I’ve overpaid my 2009 taxes through overestimated quarterly payments, and I should receive a refund later this year.

If you view the chart, you will see my “cash in banks” line decrease. That is mostly due to the withdrawals made to invest in IRAs. You may also notice that I revised my March net worth downward. This happens occasionally because it may take a few more days to finalize income amounts or other bills. Likewise, April’s net worth may be modified within the next few days, but I’d prefer if the number is revised upward.

Money at this level of detail is often a taboo subject. I chose to write anonymously so acquaintances or potential colleagues curious to learn more about me from the internet wouldn’t find Consumerism Commentary. I’m not posting these updates to brag; in fact, I consider myself to be lagging significantly behind my potential in this aspect as well as other aspects of my life. I don’t have much worth bragging about. These updates exist solely to keep myself focused on improving my financial situation over time.

Here are the April numbers as of today. Feel free to ask any questions. Read the full article →

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Has the Economic Collapse Changed the Rules of Investing?

This article was written by Flexo in Investing. 19 comments.

Money Magazine published an article with the “7 new rules of financial security,” claiming that the recent economic collapse has changed the fundamentals that investors have relied upon for decades. The simultaneous meltdown of the stock, housing and credit markets resulted in a world in which investors must adjust their assumptions in order to succeed. Here is what the writers from Money Magazine have determined:

1. Risk isn’t about how much decline in value you can stomach, it’s about not missing important targets. When weighing the risks against the rewards of any particular investment, financial advisers generally ask about whether the investor is comfortable with losing 50% from one year to the next. Investors, realizing that risky investments are necessary in order to for money to grow, agree to volatile investments when the threat of decline seems unlikely, like when the stock market has had a few years of great performance.

The past few years has tried these investors who claimed to be able to deal with a short-term decline, and many have bowed out of the stock market entirely. Money’s “new rule” is just a different way of asking the same question, without taking emotions into account. If you want to hit your target, you need to take on the risk appropriate to reach your goal. Getting scared in a turbulent market is fine as long as it doesn’t make you question your tenacity.

2. Cash is for more than just typical emergency funds, you should have enough to cover “asset emergencies.” In the economy before last year, the typical recommendation was that you should use keep three to six months’ worth of expenses in an easily-accessible savings account, but not much more. Any extra cash should be invested to “let your money work harder for you.” According to Money Magazine, you should keep enough cash to cover asset emergencies. For example, if you are counting on a 529 education investment account to provide for your child’s education, if he or she attends college in a down market, you could find yourself with not as much money available for tuition as you had planned.

If you are effectively allocating your invested assets depending on your target date for withdrawal there is no danger in the above example. You might include stocks in your 529 when college is eighteen years away, but as freshman year approaches, the account should reflect more conservative investments. Don’t rely on the all-in-one “target date mutual funds” to automatically allocate your investment between stocks and other investments at percentages that make sense; it will take some effort by the investor to monitor.

3. In addition to using your time horizon to determine the percentage of stocks in your portfolio, consider your earnings potential. Your “human capital” should be considered part of your asset allocation strategy. If your ability to earn income is strong, you can afford to take risk with your assets. Money Magazine offers the example of a tenured professor who is in line for receiving a pension, who can invest aggressively in stocks with their retirement portfolio, and a commission-based mortgage broker, who may want to secure a safer retirement.

4. Borrow cautiously rather than using debt (leverage) to seek higher returns. A number of gurus strongly pushed the idea of leverage — using debt to finance investments. It was a shaky theory at that time, and now we’ve seen the results of over-leverage and over-speculation in the real estate market and in certain investments. This doesn’t seem like a new rule; it’s just a rule that not many people were following. Mortgages acquired with no money down provide a nice return when house prices increase well beyond inflation, but historically and on average, real estate performs only marginally better than inflation. In order to achieve that average, the years of skyrocketing prices need to balance with years of plummeting prices.

5. Your home won’t make you rich. Again, I thought this was an old rule that was simply ignored for a few years during the real estate boom. I can’t tell you how many people who previously had never invested in anything were excited to tell me, after buying their overpriced house, that they would be fine and home values never decline. Others told me that real estate earns more than 10% year after year on average. Neither of these statements are true. It’s possible that my acquaintances who justified their purchases to me with short-term historical data ended up earning money on their house, “supporting” these statements. Anything is possible. But long-term growth in the house in which you live isn’t as guaranteed as people seemed to think.

Even if the house you live in does skyrocket in value, you normally can’t take advantage of the increase without selling your house and moving to a location where you can find a house of significantly lower value.

6. You need more diversification than you think in order to lower your risk. My retirement portfolio is diversified. I have a large-cap stock fund, a mid-cap stock fund, a small-cap stock fund, an international stock fund, a commercial real estate (REIT) fund, and company stock. Actually, that’s not diversified at all. Money Magazine offers stocks from emerging markets, domestic bonds, foreign bonds, and even junk bonds as part as a fully diversified portfolio. I have no bonds because I followed the common advice that those who have a long enough time frame should invest exclusively in stocks and bonds up to 5% of the portfolio won’t reduce risk to make the loss of potential growth worthwhile.

7. Don’t focus on retiring early. Money Magazine points out that delaying retirement by just one year may increase your annual income in retirement by 9%. That’s a nice raise. Someone who retired early in 2007 with a sizable retirement fund in stocks, expecting to live another 25 or 30 years — a decent time horizon for remaining in stocks under the “old rules” — have likely found today that their nest egg won’t be providing the same amount of income in the near future. Could the economic collapse have been predicted when this hypothetical individual retired in 2007? Possibly, but the threat of a stock market decline might not have been enough to convince a retiree to change asset allocation.

Do you agree with Money Magazine? Have the rules of investing changed due to the global economic crisis?

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What We Learned by Being Open with Our Friends

by Smithee

I’ve never been squeamish talking about finances with friends and acquaintances (partly, I suspect, because of my lack of an internal dialog filter), but I have learned over time that not everybody else is as comfortable as I am, so I try not to use too many specifics when having financial discussions. However, I think ... Continue reading this article…

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How To Succeed: Be A Jerk

by Flexo

Jeffery Pfeffer, a Stanford professor (say that out loud), often invited his friend Keith Ferrazzi to speak to his MBA students. Here’s a little about the frequent guest, who is now an independent consultant: Ferrazzi earned his MBA at Harvard in 1992 and quickly became a star at Deloitte Consulting. Starwood Hotels hired him as ... Continue reading this article…

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