Invest in Your Most Important Income-Producing Asset

Your net worth is based not only on how much moolah you have in the bank, but also on your human capital — that is, your ability to earn income. “We can think of human capital as assets specific to each person, such as intelligence, education, specialized skills, work ethic, and social skills in the workplace,” wrote Motley Fool contributor Doug Short (who has turned his own human capital into an investing website that's popped up as far away as an Australian business TV show — it's amazing what smart, retired people can do in their spare time).

These days, jobs are few and far between — and unemployment is poised to rise and stay high for a very long time. At a town hall meeting last year, Federal Reserve Chairman Ben Bernanke said gross domestic product growth would have to exceed 2.5% for the unemployment rate to fall. Unfortunately, consulting firm McKinsey says that newly-thrifty baby boomers, who are now saving at rates not seen in decades, will reduce GDP growth to just 2.4% annually for the next 30 years.

So to survive in a world of long-term high unemployment, we can't take our jobs — or our human capital — for granted. Ask yourself these ten questions to make sure you're investing in your most important money-making asset: You!

What's going on in your industry and location?
Employment and wage trends aren't the same across the country. The unemployment rate is in the mid-single digits for business and financial managers, but almost 20% for those in the construction industry. North Dakotans have the lowest unemployment rate, while Michiganders have the highest. Stay up on the news to know who's being hired, fired, promoted, and downsized in your area. It could help you land a job — or know when it's time to leave one.

How does your company make most of its money?
Most companies have more than one source of income, but not all of those revenue streams are of equal importance. Determine your company's essential sources of income, and become an integral player in those parts of the business.

What can you do to protect your job and salary?
Pretend you're your boss and you have to decide who gets a raise and who gets a pink slip. What qualities would you look for? What makes someone indispensable at your company?

If you own a business, how can you make yourself essential to your customers?
Even if you're self-employed, you have bosses. They're your customers, and they can fire you as easily as Donald Trump can. What can you do to make that hard for them?

Which skills could you acquire that would make you more valuable or diversify your human capital?
Your value in the workplace depends on your abilities. How many things can you do, and how well do you do them? Consider working toward a degree or starting a late-night self-study regimen that expands your human capital. Keep it focused on efforts that will really pay off. Simply getting an extra degree in the sociology of Star Trek could be a waste of money.

What would you do if you were fired today?
You'd probably: (1) apply at a few other places, or (2) change careers. If you'd apply elsewhere, ask yourself, “What can I add to my résumé to make them want to hire me?” If you want to begin a new career, ask yourself, “What should I be doing in my spare time to prepare?”

What can you do that you're currently paying someone else for?
Expanding your human capital includes learning how to do things so you don't have to pay someone else to do them. This pays off even for retirees. Think about doing your own home repairs, taxes, or (ahem) financial planning (though not until you know what you're doing).

Can you pick up side jobs to earn extra income?
In our Rule Your Retirement service, we pay a team of retired financial professionals to answer subscribers' questions. The previously mentioned Doug Short makes a tidy little income from advertisements on his website. Dabbling in extracurricular part-time work can pad your cash flow, expand your skill set, and could lead to a whole new career.

Can you sharpen your people skills?
I believe it was columnist Ben Stein who said your career depends on your affability as well as your ability. (Unfortunately for Stein, that didn't spare him from being dropped by The New York Times after showing up in commercials for a credit-score company, violating a corporate policy.) Your career depends at least partially on how pleasant, cooperative, collegial, and fun you are. So play nice!

What do you want to do with the rest of your life?
You'll probably do your best work if you're doing what you enjoy most. This economy might not provide the greatest opportunities for you to pursue your dream job, but you can start preparing now so you're ready when the market is.

Live long and prosper!

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Mike Piper
Mike Piper
10 years ago

It can also be helpful to adjust the rest of one’s investments to take into account one’s job.

For example, I’m self-employed (so my income fluctuates a lot), and my wife is in a field where it’s never certain she’ll have her job next month. So it makes sense for us to hold more cash than it might for other people.

Rob Bennett
Rob Bennett
10 years ago

I agree with Mike’s point. Investing advice needs to be customized. Too much investing advice is general in nature. We are all investing to achieve different goals and investing advice that fails to take that into account does not work. Also, I think it should be pointed out that saving is a great way of investing in yourself. Those who save can take advantage of more of the opportunities that life presents. They have the capital to start their own businesses or to take lower-paying but more fulfilling work or to buy up real estate when it is selling cheap… Read more »

Jackie
Jackie
10 years ago

I think that these are good questions to ask yourself and think about regardless of what the economy is doing. It’s always good to be proactive and improve yourself.

George
George
10 years ago

Great ideas. It’s so easy to for us to focus on saving money, but the real success comes from making money. These are great ways of doing exactly that. Thanks!

Karen
Karen
10 years ago

This is one of the most important things you can do in your life, besides investing in your relationships. Ideally, you should spend about 3% of your annual income on investing in yourself, whether that’s taking courses, buying books, attending conferences, buying professional clothes, learning new skills or increasing your old ones, etc. It amazes me how people will spend so much on items like a TV or a car, but won’t spend anything to increase the investment in their main income-generator – themselves. Also, it doesn’t have to be all at once and only on one avenue. Spread the… Read more »

Nicole
Nicole
10 years ago

I don’t know how many women with high school degrees only read this blog, but, according to a research project my student has done, the best thing that a woman in that situation re-entering the labor market can do to find a job is go to the local community college and pick up some education.

Jon
Jon
10 years ago

We too often think about how to get the most out of our cash and investments without considering how to improve our working situation. As a generation Y new to the job market, I once had to swallow some pride and wait tables for side income (like you were talking about). It is nice to prove that I’m not part of the trophy generation though. When I get some work in South America later this year, will be interesting to analyze the differences in their approach to employment and wages versus here in the U.S.

SBE
SBE
10 years ago

Great article! It is really nice to step back and consider personal development as its own topic. Thanks for the excellent tips!

Dustin | Engaged Marriage
Dustin | Engaged Marriage
10 years ago

I really enjoyed this post and the thought-provoking questions that are posed. I have been doing a LOT of thinking along these same lines lately.

My career is in a state of flux with both potentially big upsides and bad downsides. I have decided to pursue my passions and take some risks, and I have also let it be known that I expect my compensation to reflect the risk I’m taking.

Plus, I’m working on my “side job” in growing my blog and level of expertise in my niche. It’s going to be an exciting 2010!

Paul Williams
Paul Williams
10 years ago

I definitely agree that investing in yourself is key to success in personal finance. This is especially true if you haven’t done much in this arena yet. Even just a little improvement in this area could have a huge effect on your overall finances.

chacha1
chacha1
10 years ago

Excellent article.

There are tons of jobs in my city for trained “para-professionals,” especially in healthcare, while the white-collar group is looking at 6 month to 2 year gaps when moving laterally between jobs.

I would like to see a follow-on that looks at non-traditional career redirection. That is, not going into consulting or starting your own business doing what you used to do for someone else, but going from (for example) an office worker to an electrician or a retail worker to a dental hygienist … something like that.

Little House
Little House
10 years ago

Great post. I’ve always been flexible. Meaning, I’ll work multiple jobs to make sure I can pay my bills. Back in 2001, when the company I was working for closed its doors, I decided to get into substitute teaching as a way to earn money. I was able to do this because I had a BA. Along the way, I’ve also helped my husband build his business. I’m not sure which direction I’ll go in next. I’m currently working on my teaching credential, however the job prospects are really slim right now. So, I’ll again be flexible and find something… Read more »

Andy @ Retire at 40
Andy @ Retire at 40
10 years ago

I think your post can be summed up as “making the most of yourself” though of course your fine-grained breakdown is very useful. Amazing to think how adaptable we are and how we can get the most out of ourselves.

LiveCheap.com
LiveCheap.com
10 years ago

Good article. Employers today can be ultra-picky and they look for a combination of attitude, experience, hard work, and professionalism. The best employees were well known to me even at the entry level and we would work really hard to figure out how to keep them when there needed to be cuts. If you compare how much a professional athlete invests in him/herself to keep at the top of their game to how much the average worker does, there is no comparison. Even as a percent of income on very high incomes, they probably invest closer to 10% on their… Read more »

Cara
Cara
10 years ago

I agree wholeheartedly. Great post!

D
D
10 years ago

“Which skills could you acquire that would make you more valuable or diversify your human capital?” In my opinion, this is the most important question to ponder. I think that if you work hard on yourself, and ignore what you can’t control, then you’ll always be in good shape despite the state of the economy. You can control what you learn, the new skills you gain, or the existing skills you improve. You can manage your time better by watching less tv and looking for more beneficial uses of your time. However, you can’t really control the economy. If you… Read more »

Dallon Christensen
Dallon Christensen
10 years ago

Great post. One of Dave Ramsey’s most consistent points is that many personal finance issues are really income-related. If your field has certifications, earning these certifications will be very beneficial. The letters behind your name (CPA, etc.) don’t mean much. The education you must take to keep that certification is what really matters.

In an age where money is tight, we still must make our greatest investments in ourselves.

DiscipleshipGuy
DiscipleshipGuy
10 years ago

These are great tips. I think sometimes it’s easy to get caught up in our jobs and just think they will always be there, so when we no longer have them we don’t know what to do.

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