How to Invest in Your Human Capital
Your human capital can be your greatest asset.
Most of what I write about in this newsletter concerns how to build your financial capital. More or less synonymous with your net worth, this includes checking accounts, savings accounts, Roth IRAs, 401(k)s, HSAs, taxable brokerage accounts and more.
All these items are hard assets; easy to quantify and put on a spreadsheet. But just as important (if not more so) is your human capital. This represents your ability to trade time for money now and in the future. Your human capital is a little more difficult to put a value on, especially when you have so many more years to go in your career, but understanding how to cultivate and develop it is a critical driving force that will propel your financial goals.
Growing your income may not be as quick and easy as reducing your coffee budget, but it’s infinitely more rewarding. Investing in your human capital is just the trick you need to earn more money and can make you more resilient in the event of recessions, job losses or major shifts in your industry.
So what can you do to better invest in your human capital? Here are a few ways.
1. Go Back to School
Wherever you are in life, getting a degree can open you to new career opportunities. Most of the best-paying jobs require some sort of degree or formal education.
If you only have a high school diploma, you could at least get an associate degree to establish some college experience. Getting a bachelor’s is often considered a minimum in most industries, but many employers increasingly look at master’s degrees.
The downside to this pathway is that it can be quite expensive. This is especially true if you’re pursuing a master’s degree. While it can pay off, you’ll want to make sure you’re getting a good ROI. Either way, this isn’t a very good short-term way to build your human capital, and there are many cheaper methods that can get much quicker results.
You can also go to a trade school to get a professional certification. This pathway is more affordable, less time-intensive and gives you real-world experience doing the thing you will make a career out of.
2. Gain New Skills
You don’t have to go to school to learn skills that will advance you in your career. Even skills that don’t feel immediately relevant to your job description or industry can pay huge dividends.
One big one is learning how to write. Learning how to string together words to compose emails, reports, cover letters or resumes will help you no matter what industry you’re in. Typos can be embarrassing and many employers use poor writing skills as a quick excuse to toss your name out of a pile when hiring.
Learning a programming language can advance you in many industries. Understanding how to use AI prompts is one of the latest skills that workers will need as more companies adopt AI tools like Chat-GPT.
Education should be a continuous process. Even after you get the degrees you want, constantly finding new things to learn will get you far.
3. Outperform at Work
Find ways to put yourself out there in your job to show you can be relied on. Volunteer to take on new projects, train in new areas to diversify your skills and ask for feedback. You can also find a pain point at your company and present solutions to your manager. These won’t always work, but casting a wide net will open you to new opportunities.
It’s easy to get burned out or put in more work than you’re getting paid for when you try this approach. Your time is valuable, so if you’re not seeing a reasonable payoff, then that could be a sign you need to move to a different job that recognizes your skills.
4. Start Side Projects
If you really want to grow your human capital, it’s not enough to simply be good at your day job. You might also want to start side projects that can open new doors or even start a business that becomes your full-time job.
Blogging, getting published in prestigious outlets, starting a YouTube channel or creating a brand on social media can build a following you can then monetize or use as a starting point for the next phase in your career. Even if a side project doesn’t become a full-time gig, it can be a great way to diversify sources of income.
5. Build Your Network
Knowing the right people and being able to leverage relationships can go a long way in developing the career you want. A professional network can include mentors that can offer advice, past managers you can use as a reference or peers that can tell you about new job opportunities.
Networking sites like LinkedIn are great tools for staying in touch with mentors and colleagues alike. They can also help employers find you based on job skills, location and industry.
The Power of Your Human Capital
While it’s not always easy to see the value of your human capital, it can be an incredible tool for building your financial capital. In fact, when you’re young and don’t have as much financial capital, your human capital is the greatest asset you have.
And it’s much easier to build your human capital when you’re young. You generally have more time and energy to put in the work to build your human capital which you can enjoy the fruits of in your peak earning years. The older you get, the harder it will be to change careers as well. Take advantage of opportunities early in your career if you can.
Increasing your income is what will make the greatest impact on your finances over time. Finding new ways to earn money by diversifying your income sources can make you more resilient to recessions and layoffs.
Thanks to the power of compounding, investing in your human capital and growing your income will give you a better chance of growing your financial capital later in life.