When investing in yourself is wise

You've heard it before, many times probably: Investing in yourself is the best investment you can make. Really? How do we know that's true?

Google the term “investing in yourself” and you'll find numerous references to things like explore your creative side, nurture your mind and body, sleep and relax, say no to others, do things you love. You get the picture. The term is commonly used as a metaphor for self-improvement, and that's fine. But since Get Rich Slowly is a site about money, we should attempt to bring a more precise understanding of terminology like “investing” to the table. Maybe we should explore what “investing in yourself” actually looks like, from a financial point of view to better understand when it would be a wise move.

What is an investment?

People who know a little about accounting understand that, when you spend money, it can be classified as an expense (gone forever) or an asset/investment (around for a long time). To qualify as an investment, dollars spent must have three attributes:

1. More: With a true investment, you get more back than you put in. If you pay $1,000 for a bond, you get $50 every year in interest; and when the bond matures, you get your $1,000 back. When you invest in an S&P index fund, you get about 2 percent per year in dividends; and when you sell at some point in the future, you get your money back, or hopefully more. It's a common theme: more money back than you put in.

2. Money: An investment is a money thing. Sure, you can use it as a metaphor, but don't confuse fancy prose with reality: When you talk about spending money, the return has to be measured in money — and it should be more money coming back in than went out.

3. Causality: There's something rarely mentioned explicitly which makes an investment an investment: You get the money coming in only because you made that investment. You would never get that 2 percent dividend if you never bought that index fund, and you'd never get that rent if you never bought that rental property.

Where marketers (and sloppy writers) muddy the waters is when they lose sight of one or more of those three elements. Buy that smart outfit or those designer sunglasses on sale, they say — it will get you a raise or promotion. Afterward, when you actually do get a promotion, it's easy to tell yourself it was that outfit — or the sunglasses, or the smartphone, or whatever. But was it? Can it be that it was a combination of your good work ethic and nobody better being available for the job which got you that promotion? This is where the term “investing in yourself” can get a little fuzzy.

Let's take a look at the two things most likely to be listed as ways to invest in yourself (in money terms).

Investing in your education

A college degree can be a very expensive thing to buy. But it is well documented that people with at least a bachelors degree make significantly more money than people that don't have one. Whether that should be the case would be a very interesting topic for debate, but it is a documented fact that it is so.

University degrees are not the only education investments which pay good (cash) dividends, though. Field-specific qualifications like the RN designation for nurses also require an investment (cash) into an education, and they result in higher (cash) earnings.

What makes education a good investment?

But do all expenditures for education constitute a good investment?

In a word, no. In order for education to be a good investment, the money spent has to lead to more money than would have been earned without the degree, and it has to be only because of that degree. Two factors influence the success of education as an investment:

  • Which field the degree (or qualification) is in
  • How much is invested

An engineering degree will pay more than a degree in arts, for example. Again, whether that should be the case or not can be argued endlessly, but it is a fact that some degrees have a better payoff than others.

How much you invest in your education has a profound impact on the quality of that investment, as it does for any investment. Investing $100 to get an annual dividend of $10 is a far better investment than paying $1,000 to get that same $10-a-year dividend. The same applies to an education: The less you pay for your qualification, the better that qualification is as an investment.

Therefore, getting a bachelors degree by means of two years at a community college, then transferring to a four-year state college is cheaper than a similar degree at an expensive private school, and that makes it a better investment.

The decision to pursue education is often accompanied by strong emotions, sometimes fear and even entitlement. From a monetary investment perspective, though, it's very clear: Some disciplines generate higher returns than others, and the less you spend to get that kind of education, the better your investment (unless the more expensive option can be demonstrated to directly yield a higher return).

Investing in your own business

Another thing that is likely to be considered making an investment in yourself is starting your own business. It never fails to amaze me that people who rail at the riskiness of the stock market think it is safer to sink their hard-earned money into a business of their own, given that the statistical chance of losing all that money in the first three years is something like 80 percent.

Starting your own business and thinking of it as an investment is probably not a wise view, because your own business is actually two things rolled into one: a job and an investment.

I know of many people who run their own businesses, never make much money at it, but are quite content … because it's a job they can't be fired from. There's a lot to say for that, but being a good investment is not one.

Why your own business may not be a good investment

If you view a business strictly from an investment point of view, you have to separate the money generated between a wage and a return.

Most businesses require capital up front. That's the investment part. Let's say it's $50,000. At the end of the year, let's say the books show $100,000 in profits. It's easy to say that's a terrific investment: Where else are you going to get a 200 percent return every year?

That would be wrong, though.

If you had to hire a general manager as competent as you, you might have to pay him or her $95,000. So $95,000 of what you made is the wage for your work. That means your investment of $50,000 earned only $5,000. Not bad — granted — but it's not 200 percent either.

Consider the alternatives

In practice, very few business startups do that well. If you invested the capital for your businesses in a CD (or an index fund) and add the wage you get from a regular job, chances are you would make more money than you would by running your own business … assuming you are one of the successful 20 percent who didn't lose it all.

Investing in yourself is a smart decision only when the money earned strictly as a result of that investment is more than the money invested. You can take the view that things like finding your dream, fulfilling your potential, making the world a better place and things like that are worthy causes for the money you spend, and there is nothing wrong with that. Calling those things investments, however, may not be the most accurate position to take.

Investing in yourself is often the best investment you can make — however, that is not always the case. Wisdom comes from taking a hard look at the money you're investing, and making sure that extra money from that investment will be put back in your pocket.

When do you think investing in yourself is a wise move? Have you measured the return on your investment in yourself against the alternatives to get a clear picture?

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Beth
Beth
5 years ago

I have to admit this wording made me laugh: “A college degree can be a very expensive thing to buy.” as if it was something you could pick out from a store. Earning a degree can be expensive, but it’s really the total of a lot of costs and decisions — tuition, books, living expenses, do you own a car, how much do you spend on entertainment, is it a co-op degree, do you work, how much do you earn, etc. The more you can trim your costs, the better the ROI. Like other investments, you only really know the… Read more »

Ali @ Anything You Want
Ali @ Anything You Want
5 years ago

I think that investing in yourself, especially through education, is almost always a good move. I recently invested in myself by completing my MBA, and though I haven’t run the numbers (mostly because it is impossible to know what my career trajectory would have been without the MBA), I feel confident that I’ll see a strong return over my lifetime. It is important to consider not only the monetary return, but also the personal and emotional returns. I feel great about myself knowing that I have an MBA. No one can ever take that away from me.

William Cowie
William Cowie
5 years ago

I can echo that. I worked hard in high school to get a scholarship that paid for my bachelors. Then I did my MBA part-time to keep earning while studying. During that program I got that “break-through” job through one of the guys I was studying with. There’s a part that’s unpredictable, true… but with the right education you moved the odds in your favor, no question about it. That’s the “R” in ROI There is also a part that is entirely under your own control: the cost. I did my MBA at a state university where the cost was… Read more »

Clever Blonde Donna
Clever Blonde Donna
5 years ago

Thx for thoughtful & truthful article. I am about to start study at age 50. My sister, who is a financial advisor thought due to my age I may not get enough ROI. My current job I will earn $40,000 pa but after 3-4yrs study for my degree a base rate is $65,000. My field currently has a deserate shortage and demand is growing. Considering I have a good 15 yrs left to earn I consider it worthwhile. I believe it would be worthwhile even if I only work for 10yrs. $25,000 increased earnings x 10 yrs equal $250,000. The… Read more »

William Cowie
William Cowie
5 years ago

Good thinking — best of luck! 🙂

lmoot
lmoot
5 years ago

Another big one is investing in your health. Sure health for the most part is almost free. But if joining that group fitness center is what it takes for you to get healthy (and all the free stuff, like jogging doesn’t get you to work out), then it can definitely be a big financial win against very expensive healthcare costs; not to mention the ability to work longer when you’re healthy, vs being forced to rely on disability and losing out on years of peak earnings. Considering that many people are in debt because of medical issues (many of which… Read more »

Erin
Erin
5 years ago
Reply to  lmoot

And sometimes even the expensive things are still good investments. I’m in the middle of a six month long health coaching program that’s costing me $200/month, but I think it’s going to perform well as an investment despite that. Right off the bat, I’m eating out less. The four lunches and one breakfast I used to eat out cost $63/week, and the cost of those has actually been directly absorbed by my grocery budget at no added cost because I’ve found more effective ways to shop and less food that I buy is going to waste. So that’s already $63… Read more »

slcccom
slcccom
5 years ago
Reply to  lmoot

Ah, yes, the magical thinking surfaces again. No, “better lifestyle choices” does not immunize anyone from illness. Infections can cause diabetes. Also heart disease. Cancer is largely genetic. And so on. Clearly, you are one of the people who judges ill people as being responsible for their own illness. One day you’ll find out that we will all die, as our bodies are designed to fail.

lmoot
lmoot
5 years ago
Reply to  slcccom

I get what you’re saying, but I don’t think it applies to my comment. If I say ISSUES AFFECTED BY LIFESTYLE CHOICES…then I can’t possibly be referring to anything but issues that are affected by lifestyle choices. Also, just because you have genetic issues, does not mean that you are not susceptible also to health issues caused by mal decisions, so the same advice could and should also apply to those with illness outside of their control; if anything so that it doesn’t cause new issues or exacerbate existing issues. I thought I was distinctive in my original comment. How… Read more »

Beth
Beth
5 years ago
Reply to  lmoot

I think it was the “many of which probably could have been avoided through better lifestyle choices” part of your comment that’s getting you into trouble 😉 I can see both sides. Healthy lifestyle choices can help lower your risk of certain conditions and help you manage the symptoms of certain conditions. Vaccines can help prevent certain diseases and illnesses, etc, etc. However, doctors have a LOT to learn about what causes diseases and conditions. Even if something is in your genes, they aren’t 100% sure what “activates” those genes. Even vaccines aren’t 100% effective, especially since our immune system… Read more »

lmoot
lmoot
5 years ago
Reply to  lmoot

Reading through my original comment I can see how it might have come across as if I were blaming people for their illness. I did not intend that. It cannot be ignored though, that there are widespread cases of illnesses being caused or aggravated by lack of exercise, not eating a healthful diet, and refraining from harmful substances proven to trigger things like cancer, diabetes, and cardiovascular diseases, which otherwise may have occurred much later in life, or could be suppressed indefinitely in certain individuals. I don’t always have the time to clarify my thoughts in the moment, but I… Read more »

Mysticaltyger
Mysticaltyger
5 years ago
Reply to  lmoot

I’m with you Imoot. Scientists who study the issue will tell you that 70% of what ails people in America today are diseases related to lifestyle choices. It seems we would rather talk about the 30% of health issues that are beyond our control than tackle the lifestyle choices that are within our control.

slcccom
slcccom
5 years ago
Reply to  slcccom

“Scientists who study the issue” are doing association epidemiology generally based on complete and total ignorance of the health of the individuals whose information is aggregated. To my knowledge, nobody is actually doing really thorough research looking for sub-clinical illnesses that drain energy, leading to less energy, and therefore less exercise and poorer eating habits. And the “diet studies” are based on what people remember and report eating. And as Dr. House says, “people lie.” Generally those studies aren’t worth the paper they are printed on, or the pixels they are viewed with. Try studying scientific experiment design sometime. You… Read more »

Beth
Beth
5 years ago
Reply to  slcccom

You make a good point about experiment design. People read things in the news and don’t realize that studies are often conducted on animals or undergraduate students (psych studies). Moreover, a single experiment doesn’t really prove anything, really — the results need to be reproducible. (And a recent review found that the reproducibility of psychology studies was actually quite low, for instance). The type of studies needed to prove certain lifestyle factors cause/prevent certain diseases would never get past an ethics board. (Correct me if i’m wrong, but aren’t double blind trials the gold standard?) Still, we all have to… Read more »

slcccom
slcccom
5 years ago
Reply to  slcccom

Beth, the Framingham Heart Study is actually somewhat useful. It follows people over decades, with regular medical studies on each subject. Of course, it is designed to study heart disease. And I guarantee that it isn’t looking at such things as Lyme infections, autoimmune disease, etc.

That gives me an idea. People in prison for life might be good subjects, provided that you can completely monitor what they eat and their exercise, etc. Hmmm…

Debi
Debi
5 years ago
Reply to  lmoot

Learning to do it yourself is something that is almost never mentioned as a way of “earning” more. As avid do-it-yourself household we’ve “earned” many thousands of dollars over the years in money we’ve not paid out to have the work done for us. We know families that don’t do any work themselves and have a handyman on speed dial. I can’t imagine what it costs to keep up a home that way.

Katelyn
Katelyn
5 years ago
Reply to  lmoot

I completely agree with this! Health definitely deserves investment! And I think you and Erin make an excellent point about it being okay to spend money on something you could theoretically do for free but won’t actually do on your own. So many times on personal finance blogs I see advice about not signing up for a gym membership because running in a park is free. That advice sounds judgey and uninformed to me (granted I take fitness very seriously, and as a result I spend more in this category than most people would). I think spending $40/month to have… Read more »

Jerry
Jerry
5 years ago

“In practice, very few business startups do that well. If you invested the capital for your businesses in a CD (or an index fund) and add the wage you get from a regular job, chances are you would make more money than you would by running your own business … assuming you are one of the successful 20 percent who didn’t lose it all.”

AMEN TO THAT!!

Sanjeev
Sanjeev
5 years ago

Good Article William ! Continuous Education in any field that improves ones life in terms of finance, health, relationship and lifestyle, I think, is investing in yourself. I think, most people finish their college degree and after that they never open a book, listen to CDs, attend seminars to enhance their skills and they remain stuck in their career and life itself. College Degree is important. I believe everyone must have it to get a Job. But, it in itself is not enough. After that lifelong learning in any field that one gets excited, makes money, and have fulfillment, is… Read more »

William Cowie
William Cowie
5 years ago
Reply to  Sanjeev

And, of course, there’s simple, easy and free education you get from sites like these. So easy to discount that when you read it every day, but think back to how your finances were before you began reading this (free for you) blog. Shameless plug, I know, but isn’t it true, though? 🙂

These days there are so many ways to invest in yourself for absolutely no money. Bit it takes that other precious commodity: time.

chintan
chintan
5 years ago

I think one more important thing is Time. Apart from Money you invest your Time as well. You are going to get good ROI of your Time. I think that is also one of more important factor to consider besides Money.

William Cowie
William Cowie
5 years ago
Reply to  chintan

That is an excellent point, and often overlooked. Comment #31 below is a good example.

Pam G
Pam G
5 years ago

Great article, thank you. I agree that not everyone should go into business for themselves. I recently watched a good friend, older gentleman, early 60’s, re-start his business. He was super successful in the 80’s and 90’s, but the business tanked thru the 2007 recession. He recently felt he was ready to start over. He semi-secured a big job and was investing in equipment left and right. The big job fell thru and now he’s having a really hard time. I hope he will be okay. I see your point about degrees as well, especially now a days with fields… Read more »

Jeff
Jeff
5 years ago
Reply to  Pam G

Not to mention that not everyone wants to run a business themselves, there is this attitude in the USA that everyone wants to be the chief when in reality most people upon seeing what the chiefs have to deal with find that they’d rather be well paid indians instead.

getagrip
getagrip
5 years ago
Reply to  Jeff

I’ve worked with a number of people who started their own businesses and either they failed or they made similar money to working for a large employer and after a few years I met them back at work. I also grew up knowing people who ran their own business and most did okay for themselves. I feel that the advantage a person who runs their own business has is they really respect work, learn how to be careful with a dollar, and basically are forced to understand and learn about taxes. I noticed when they have come back to work… Read more »

Raphael Woods
Raphael Woods
5 years ago

“When something is important enough, you do it even if the odds are not in your favor.”

Investing your money in your own business is risky. Not everyone has the ability to make it work. Does that mean you shouldn’t do it?

Employment isn’t guaranteed either, however.

stellamarina
stellamarina
5 years ago

Some 20 years ago, while my husband was without a job, we meet a guy with a quality metal detector on a popular beach. My husband talked with him and got interested in buying one. We decided it would be a $700 investment. It paid back for itself within several months and was a source of income until my husband got a real job. Now it still is a hobby that brings in extra income. (No…you do not want to wear your gold rings while swimming at the beach. :o)

Edward Gate
Edward Gate
5 years ago

investing in yourself is the best investment you will ever make. it will not only improve your life, it will improve the lives of all those around you.
-Robin S.

Bethany
Bethany
5 years ago

Investing in yourself is a great priority but education isn’t always the winner. Or perhaps I’m the exception to the rule. I have a HS diploma, worked as a federal lobbyist in a DC law firm for several years and now own a medical innovation consulting firm with an exceptional salary. I invested in learning on the job rather than have loads of school debt for half the salary. There are all sorts of ways to invest in you.

William Cowie
William Cowie
5 years ago
Reply to  Bethany

Good point, Bethany! Getting known in an industry is a major form of investment. It usually takes extra hours and/or working for lower wages than your true worth for a time.

Mike @ Tip Yourself
Mike @ Tip Yourself
5 years ago

Remembering yourself is sometimes hard. Many of us are so generous with others, but at the expense of ourselves. This is a great reminder not to forget YOU. Cheers William!

lisa
lisa
5 years ago

I am very uncomfortable with your coverage and comments re having your own business. Yes, the stats look bad on the surface, but i encourage you to go deeper in your analysis. Even if you just read The Millionaire Next Door. A large percentage of all those who are worth a million in our country (And thats not all that much) did it through owning their own businesses. Even those who went bankrupt often got back up and suceeded the next time. And no, they didnt have a lot of expensive school debt.

William Cowie
William Cowie
5 years ago
Reply to  lisa

You are quite right, Lisa. Those who make it usually do very well. Those who don’t, don’t. (No too unlike the movie business: many make it, but millions don’t — kind of like that Dionne Warwick song: all the stars that never were, are parking cars and pumping gas.)

The problem is that enormous chasm, the 80% failure rate…

We’re thinking of doing a post on what the key might be to become one of the successes, and not the 80 %. 🙂

LeisureFreak Tommy
LeisureFreak Tommy
5 years ago

When I was a new salaried Sr. engineer in my first career I would often stay late to learn something new while assisting other engineers with trouble resolution. I also would put in extra hours exploring the edges of technology just outside of what my area of expertise was so I could do my job better. Since I wasn’t paid for these extra hours I kept telling myself and my wife that I was investing in myself. It paid off becasue I soon knew the stuff that others didn’t and was seen as the SME go-getter, go-to-guy. Result, promotion to… Read more »

William Cowie
William Cowie
5 years ago

You were smart to recognize that investing does not just entail money, but that other, perhaps even more valuable, resource: time. Good job! 🙂

Mike
Mike
5 years ago

We also need to invest in your health. There’s no need of going to gym and all that crappy stuff. I s just a simple step, we just need to eat healthy and avoid all the unnecessary stuff that our body doesn’t need.

Anthony Calvillo
Anthony Calvillo
5 years ago

Hey William,
Nice post. Investment in yourself is a guaranteed investment and it is the best way to ensure that you are well-taken care in the future

Tolu Idowu @suave finance
Tolu Idowu @suave finance
5 years ago

It is good to invest in yourself, however, I do not agree with you saying investing in education is only good when you have made more money than you have invested in it. I can remember my lecturer once said that he cannot believe some people only associate success with money cause even attaining the degree is success on its own. Which I totally agree with. However, you must always aim for growth that is when using your qualification to make money comes into play. In other words, it is good to invest in education as long as you attain… Read more »

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