Contributed by: Nick Defenthaler, CFP®
Human capital – “the collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community,” as defined by dictionary.com. In my mind, however, I have a more simplistic definition – an investment in YOU. As financial professionals, a major part of our job when working with clients, like you, is aligning your investment portfolio with your individual goals and objectives, which is typically comprised of various mutual funds or ETFs. However, in many cases, the best investment we can ever make is in ourselves – something we can oftentimes overlook or we don’t truly appreciate how big of an impact this investment can have on our lives.
Investing and financial planning both contain many factors or variables that we have either very little or virtually no control over—for example, what the S&P 500 performs for the year, tax policies, how retirement plan contribution limits change, etc. So when working with clients, we prefer to really focus on the things that we can control, like savings vs. spending, portfolio risk, debt load, etc., and maximizing your own human capital falls within this category.
So how do we focus on things we can control? Some examples include:
- Being intentional with the degree you pursue
- Obtaining professional designations after college
- Taking classes to become an expert in an area of interest that can progress your career
- Taking on additional responsibilities in the workplace to earn more than the standard cost of living pay increase
- Moving to a new city with more opportunity for you
- Hiring additional staff or a career coach
The list could go on and on. You may notice that many of the items that go into the investment in one’s self or “human capital” require capital! I challenge you to not think of these items as “expenses,” but to rather look at them as a necessary component in your ongoing saga of investing in yourself. This paradigm shift will improve your outlook and more than likely increase the likelihood of your success.
Making the right choices and committing to investing in yourself typically translates into increasing the value of your future earnings, a major component of your own human capital. Does this mean you give yourself carte blanche while investing in yourself? Of course not! Those who truly maximize their human capital are strategic with their investments and think long-term; very similar to how we approach the investments we recommend to clients.
As we ring in a new year, it’s a good time to take a step back and think of the ways you want to invest in yourself in 2016 by laying out a plan of what you want to achieve over the next few years. Just as we help clients align goals with the investments we help them make, you should do the same with your own human capital, because chances are, investing in yourself will be one of the best decisions you’ll ever make.
Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Keep in mind that individuals cannot invest directly in any index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Investing involves risk and investors may incur a profit or a loss.