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Human Capital: Your Most Valuable Asset

We often identify ‘rich’ folks by external markers like their job title, standard of living, or social status. These markers are associated with money.

But what if there was another way to define ‘rich’?

According to Dictionary.com, the first definition listed for the word ‘rich’ is “having wealth or great possessions; abundantly supplied with resources, means, or funds; wealthy.”

Notice how money is listed as a form of being rich or wealthy, but it’s not the only way. If being rich means merely having an abundant supply of something, then you can be rich even if you don’t have a lot of money.

Most of us agree that money’s not the only form of wealth but somehow, we define everything by it. Our society gives preference to those who have a lot of money, favoring them over others who may have less. This makes those who have little money feel less valued, less accepted, and less capable.

Different kind of value

different value
Image by Steve Johnson

The reality is that we are each capable at something. You may even be significantly more capable at it than the next person. But unless you recognize that and work to turn that capability into something that’s valued by others, you won’t be able to market it or earn money from it.

On the other hand, if you’re able to market your skills and get paid to do work, you’ve created human capital, a different form of economic value. Human capital is the potential to earn money with the skills and abilities that you have. Education, experience, emotional intelligence, communication skills, problem solving ability–these all contribute to your human capital. The more skills you possess and the more effective you are at applying them, the more you can earn.

So even when we’re not rich, we can be rich in human capital. And for many of us, human capital is our biggest asset.

It’s not just how much we earn in a given year but also the amount earned over time and the compounding effect from those earnings. If you’re young, you have many years left to work and earn. Investing in growing your human capital now and continuing to do so will produce returns for years to come.

If you’re older, there are still things you can do to maximize your earnings. You likely have more work experience and a greater network that you can leverage. You can transfer those into a new role, company, or your own business.

Wherever you are in life, it’s never too late to start investing in your human capital.Wherever you are in life, it’s never too late to start investing in your human capital. Click To Tweet

Unfortunately, human capital is often overlooked because it doesn’t have a dollar amount attached to it. It’s not easily measured nor is it obvious to others the way a big house or fancy car is. So we don’t make much effort to invest in it–to acquire and maintain it–like we do with more tangible assets.

You may not realize it, but human capital is the most important asset you own. To better understand this, let’s define what an asset is.

An asset is simply anything you own that is worth something to someone else. This means an asset must be “useful and desirable” to the point where someone is willing to pay money or exchange something for it.

For example, your house, car, jewelry, and other property are assets. If you have a piece of land or a rare painting, they’re assets. If you have tickets to the upcoming Super Bowl, that’s an asset. If you have rights to a website domain name that a big company wants to buy, that’s also an asset.

On the other hand, there may be things that are very valuable to you but that may not be of any value to others. Those things aren’t considered assets. You may have a collection of cherished dolls from your childhood, for example, but if nobody else sees value in it, it’s not an asset.

Unfortunately, sentimental value is not marketable. That’s not to say you shouldn’t own anything sentimental. It just means it’s not an asset in the sense that you can’t sell it or exchange it for something else.

Two types of assets

depreciating asset
Image by Nathan Van Egmond

Now let’s take it one step further and discuss two different types of assets: appreciating and depreciating.

Those words probably sound scary but they’re really not. An appreciating asset is simply something that goes up in value over time. Depreciating assets lose value over time.

This is an important distinction because depreciating assets don’t help you get wealthier in the long run. At some point, they may actually turn into a liability (the opposite of an asset) when they’re worth less than what it costs to keep them, maintain them, or dispose of them (have you ever tried to throw out an old CRT TV? It’ll cost you at least $10).

Appreciating assets, on the other hand, help you build your wealth over time because they increase in value. They’re the kinds of things people refer to as “good investments” because they only become more desirable and/or more rare, thereby growing in value.

So, what does this have to do with human capital?

To build wealth, we need to make our human capital an appreciating asset. Our ability to earn money should grow over time, not diminish. Click To TweetTo build wealth, we need to make our human capital an appreciating asset. Our ability to earn money should grow over time, not diminish. And to do so, we need to invest in it, cultivate it, and protect it just like we do with any other asset.

Then, we need to measure it so that we can monetize it. We need to demonstrate the value of our human capital in such a way that makes it useful and desirable to others–whether it be employers or prospective clients.

In our current economy, the resume is the closest thing we have to measuring and communicating someone’s human capital. It’s not perfect and doesn’t capture everything you have to offer an employer. Yet, you can craft your resume to be clear and compelling in order to better market your skills and communicate the value of your human capital.

A + B does not always = C

new work
Image by Hunters Race

Building human capital, however, is not just a formula. Not anymore.

College degrees have long been a hallmark of higher income brackets. Nowadays, you don’t necessarily have to attend college anymore to earn a decent salary. Dental hygienists, commercial pilots, and web developers (among others) all earn relatively high incomes without a four-year degree, according to this list.

There’s also an emerging trend among top employers who no longer require candidates to have a college degree to work there. Companies like Google, Apple, and Bank of America are giving up this traditional requirement to attract a greater pool of candidates, including those who took a less conventional route to employment.

As quoted on Glassdoor.com from an Ernst and Young managing partner, “Academic qualifications will still be taken into account and indeed remain an important consideration when assessing candidates as a whole, but will no longer act as a barrier to getting a foot in the door.”

Nonetheless, education is still one of the best ways to increase your human capital and earning potential.

A few years ago, I considered my options for growing my career. I was a stay at home mom at the time so I wasn’t really accruing work experience. I also didn’t love what I was doing before. So instead, I decided to go back to school to get my certification for financial planning. It was one of the best financial decisions I made. Within just a few years, I entered a new industry and doubled my income earning potential.

An important caveat: the knowledge and skills acquired from your degree still needs to be useful and desirable. Otherwise, it’s possible to have a PhD yet be unemployed.

Rethinking human capital

linchpin
Image by Samuel Zeller

To reiterate, work is no longer a formula or a linear progression. Job security is a thing of the past. So to grow our human capital and preserve this asset–our biggest asset–we need to think outside the box.

Seth Godin writes in his book Linchpin, “Becoming a linchpin is a stepwise process, a path in which you develop the attributes that make you indispensable. You train yourself to matter…[to be] a person who’s worth finding and keeping.”

In my next blog post, I’ll discuss ways to develop your human capital and protect it. After all, you are your biggest asset. You can’t afford to ignore it.

What are your thoughts on human capital? Please share in the comments below!

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