Traditionally when we think of investing our minds turn to stocks, bonds, mutual funds or real estate. While these may or may not be the best investments for an individual’s portfolio there is one investment that is almost always the right choice for any individual – human capital.
Human capital is an individual’s worth of their own potential. Coined by economist Theodore Schultz, human capital can be invested in like any other asset in order to add value to an individual’s life through earnings, health, and quality of life.
One of the classic examples of investing in human capital would be the decision to go to or go back to school. Generally, the investment enhances and expands an individual’s knowledge of a particular subject or subjects and enables them to be more qualified for employment in that particular field. Such specialization (such as a doctor, attorney, and professor) generally allows that individual to demand a higher income thus improving earnings, and quality of life.
Another example of investment in human capital would be eating healthy foods and exercising. Generally, this investment allows for greater health which improves quality of life, longevity and the potential to earn more as an individual is not decreasing their production due to missing work for being sick. An individual also saves money by not paying higher life and health insurance premiums to name a few.
The good news is that investment in human capital doesn’t have to be that costly. In other words, the returns can be exponential for very little cash outlay. For example, you may be able to check with your employer to see if they offer tuition assistance in order for you to take classes that will make you a more productive employee.
Several institutions offer online MOOCs which are free online delivery of college course material. Visiting different universities’ web sites can help guide you to the course that’s relevant. YouTube has an amazing selection of recorded material ranging from recorded finance classes from MIT to basic algebra from community college. The Khan Academy also has a wide array of courses and material – all for free.
For your health, it doesn’t cost a thing to put on some shoes and take a brisk walk or go for a run. Doing bodyweight exercises such as push-ups and pull-ups are free. Your employer may even offer discounts for joining the local health club. Eating healthy foods doesn’t have to be expensive either. In fact, it may be less expensive to eat healthy – depending on what you’re buying. I talk about this in my book (insert shameless plug here).The investment in your health and happiness boosts your human capital.
Investing in your human capital with knowledge and health is an excellent addition to your (hopefully) well-diversified portfolio of wealth.