I talk a lot about investing on this blog. I’ve gone on and on about how important I think it is to invest in shares and super… but what about investing in yourself? Let’s have a little chat about something called human capital.
Human capital is a measure of the present value of your income generating capacity. When you’re young, you have many years to generate income but not a whole lot of experience to earn a high salary. Investing in yourself increases your human capital. It’s why we all go to school, why some of us go on to further education like TAFE or university. Human capital is an intangible asset that is essentially the economic value of your education, experience, training and skills.
I’ll give you an example. When I was at uni studying for my bachelors degree, I worked at a call centre that specialised in sports gambling. Sidenote, I still rate this as the most fun job I ever had (mostly due to the immense effect it had on my social life). Anyway, at that point in my life, my human capital was low. My only real skills from an employer’s perspective were in customer service – with a speciality in dealing with intoxicated people.
While the job was fun, it’s not ultimately where I wanted to end up. It was also not the wage I wanted to live on for the rest of my life. Investing in yourself increases your human capital. By educating yourself, trying new life experiences and working your way up the corporate ladder, you increase your human capital. Essentially, it allows you to work smarter, not harder.
$$$ for experience
While trawling through Twitter a while ago I came across a great tweet that sums up exactly what I’m talking about:
That’s what human capital is. I’ve studied on and off for most of my life (much to my mother’s “are you still at uni?” despair). I’ve also changed up my career path quite a few times – some would say it’s colourful – but it has meant that I’ve gained a wide variety of skills that enable me to do that task in 30 minutes.
The world’s most successful investor, Warren Buffett has said that the greatest investment a young person can make is in their mind. Money comes and goes, but what you learn by investing in yourself stays with you forever – and that’s what increases your human capital.
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