Understanding Your Most Valuable Asset: Human Capital
Have you ever thought about what your most valuable asset might be? If you’re thinking about your house, car, or even your savings, you might be missing something important. While these things may appreciate over time and amass a large amount of wealth for you, the greatest asset is often something less tangible. That is your human capital.
What is Human Capital?
Human capital is the economic value of your skills, knowledge, experience and working years. Think of it as everything you’ve learned and all the skills you’ve developed that help you earn a living. Said simply, your human capital is your ability to earn income.
Just like a company buys machines and the right personnel to service the machines such that it lasts a long time to continue to make more products, you invest in yourself through education, training, and staying healthy to increase your ability to earn money for the long run. Perhaps this is what is meant when they say ‘health is wealth’?
How to Calculate Human Capital
Calculating human capital helps you understand your potential future earnings. Factors to considering when calculating your human capital are:
Your Annual Earnings: This is your salary plus any bonuses or other income.
Remaining Working Years: Think about how many years you have left until retirement. For example, if you’re 40 and plan to retire at 65, you have 25 years left.
Growth: Your salary might increase over time. A safe guess might be around 3% each year.
To keep the maths super simple, disregard your projected income growth and multiply your working years by your annual income.
So for example, if your annual income is $150,000 and you have 25 working years left, your human capital would be approximately $3,750,000. This gives you a rough idea of your potential earnings over your remaining working years.
The Bigger Picture: What Are You Doing With Your Money?
Understanding your human capital is just the beginning. Next, think about how you’re managing and protecting this valuable asset. Here are some important questions:
Are You Investing in Yourself?: Are you continuing to learn and develop new skills to boost your earning potential? Consider investing in personal growth programs or training programs to acquire more certifications. This makes you even more valuable in the marketplace. Health and wealth is built on your spare time.
Do You Have Enough Insurance?: Insurance can protect your income if something unexpected happens. Insurance coverages like disability insurance, critical illness insurance, health insurance and life insurance can help replace or supplement your human capital.
Is Your Money Growing?: Are you investing your savings wisely to keep up with inflation and grow your wealth
Conclusion
Now is the time to take action and secure your financial future. Human capital is a powerful idea that highlights your earning potential and the importance of smart financial decisions. If you’re interested in maximizing your human capital and managing your finances better, let’s talk.
Book a call with us today to discuss your situation. Together, we can explore strategies to protect your income, increase your income with tax planning strategies and grow your wealth. Let’s create a plan to make sure your financial future is as bright as your potential suggests.
Human capital is more than just an idea; it’s the foundation of your financial well-being. Recognize its value, invest in it wisely, and watch your financial future flourish.