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Invest in Yourself to Increase Your Worth

April 27, 2011 Leave a comment

It’s difficult to manage your money if you don’t have any money (or if you feel like you don’t have any money).   If you feel like you’re constantly treading water when it comes to managing your money, paying down debt and increasing your net worth, you may want to think about another aspect of money management called human capital.

Human capital is your ability to earn income and the value of that future income.  The younger you are, the larger your human capital because you have more time to work and earn money.  Developing and protecting your human capital is an important part of managing your finances.

The Wall Street Journal has a great article which discusses the importance of knowing what you are worth.  It looks beyond the standard idea of net worth (how your liabilities (e.g., mortgage, student loans, etc.) stack up against your assets (e.g., home value, retirement accounts, investments, etc.)) and discusses how your worth also means your human capital.

Building your human capital can increase your income and can increase your ability to reach your financial goals in the future.  Essentially, you are investing in you.

How Do I Cultivate My Human Capital?

Training and Education.  Is there a certification you’ve been eyeing that will increase your chances of getting promoted?  Is there a class you can take that will allow you to learn new skills?  Don’t overlook classes and trainings that will increase or diversify your skill set.  Are you interested in changing to a more lucrative career?  Take local classes during the weekends and in the evenings so that you can build skills that will allow you to become qualified to do the work you want to do.  Take on volunteer work that will make you more marketable.

Active Involvement in Your Career Development.  When I started my legal career, I went to work, got my assignments, put my head down and worked.  My academic success came from hard work so why change what works?  Because success in business is not just about who works the hardest.  Who you know, what you can offer your company and how you relate to people are all extremely important.  You could be the smartest person in the office but if people can’t relate to you, it’s unlikely that people will have your back when promotions are being discussed.  Cultivate relationships and seek out mentors.  Volunteer for new projects.  Become an expert in a new area.  All of these things will help you develop important human capital.

Network and Maintain Contacts.  You are more likely to get your foot in the door if you know someone behind the door.   Join a professional organization and meet new people.  Maintain contact with people and don’t wait until you need something to cultivate those relationships.  Make sure your relationships are a two-way street.  Offer to help people and you’ll receive help when you need it.

How Do I Protect My Human Capital?

Disability Insurance.  What happens if you become injured and can’t work?  You want to protect yourself and your family by having disability insurance.  Disability insurance will cover part of your salary when you are unable to work.  Disabilities can often have a devastating effect on your finances because not only are you not working but you are also running up medical bills to treat your injury. Protect yourself and your capital.

Use Subtraction to Simplify Your Budget

March 9, 2011 Leave a comment

Have you ever been overwhelmed by  all the options that exist to manage your money?  There are a lot of programs and spreadsheets and some of they can be overwhelming.  Sometimes you really just need to simplify things.

I recently learned of an app that simplifies budgeting.  It’s called “Left to Spend” and it helps you keep track of what you spend on a daily basis.  It helps you decide how much you can afford to spend each day, it allows you to record amounts you spend as you go about your day and then it lets you know how much you have left to spend.  It’s so simple!

I love this idea but unfortunately I’m have an Android and this app is only for iPhones.   Also, it costs $0.99 and I generally don’t pay for apps.  But that’s okay!  You really don’t need an app for this.  I manage my money this way everyday.   And while I would love to have an app for it, pen and paper work just fine.

First, decide how much you can afford to spend each month by taking your monthly income and subtracting out all the fixed expenses (housing expenses, utilities, gym, car insurance, cable, etc.).  Include a category for savings to make sure you pay yourself first.  Take the rest and divide it by 4 and this will give you an amount that you can afford to spend each week.  Once you know how much you can afford to spend each week, subtract your expenditures as you go through your week.

Example:  If I make $2000 per month and my fixed expenses are $1000,  I have $1000 left to spend for the month.  If I divide that by 4, I have $250 to spend each week.  If I spend $20 on Sunday, then I have $230 for the rest of the week.  If I spend $30 on Monday, I have $200 for the rest of the week, and so on and so forth.

Why do I use this method?  Because it means that I don’t need to set aside money in specific spending categories.  Some weeks I like to take my lunch to work but other weeks I get really busy and enjoy eating at some of the local restaurants.  I can change my mind from week to week and spend money in different places.  It’s okay as long as I don’t go over the weekly amount.  Once I spend that money, it’s gone.

Give this method a try and see if it works for you!

Categories: Budgeting, Saving Tags: , ,