Your Most Valuable Possession? That Would Be Your "Human Capital"



Quick Take:

You look like a million bucks. Suppose you were drawing up a list of your assets. Sure, you would consider including your house, stocks, bonds, mutual funds and savings account.

But if you are in your 40s or younger, the assets you have amassed likely pale next to the value of your "human capital," which is your ability to haul in a paycheck. Let's say your annual salary is $60,000. To appreciate how valuable this income is, think about how much you would have to invest in certificates of deposit to get back interest of $60,000 a year. The implication: Your human capital might be worth $1 million-and maybe much more.

All this raises some key questions. How can you make the most of your human capital, how should you protect it-and how does your paycheck fit into your bigger financial picture?

Giving and getting. Your income-earning ability will hinge on a host of factors, most likely including your work ethic, education, network of business contacts, employment experience, how rare your set of skills are and how creative you are in coming up with new products, new services or better ways of performing existing tasks.

This is typically what you have to offer, whether as an employee or as a business owner. But what do you get in return? It isn't just dollars and cents.

Your employer may provide valuable perks such as life insurance, medical insurance, disability insurance and retirement-plan contributions. There are also harder-to-measure benefits, such as job security, a pleasant office environment, the ability to work from home and having a position you find especially fulfilling.

Given that your job likely consumes a big chunk of each week, the quality of your work life is critically important. Indeed, there's a sense that the work world has become increasingly divided-with many folks at the mercy of the economy, while others are highly prized, enjoying healthy paychecks, exciting jobs and ample opportunities.

Capitalizing on yourself. How does all this fit with your larger financial life? Here are seven implications:


Source: Jonathan Clements, Director of Financial Guidance, Citi Personal Wealth Management.

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Sourcing: Data on earnings of college vs. high school graduates reported in The Wall Street Journal, July 17, 2008.

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