What Is Your Largest Asset?
What Is Your Largest Asset?
A man's wealth is not in the purse he carries. A fat purse quickly empties if there be no golden stream to refill it."- The Richest Man in Babylon
If I were to ask you, what is your largest asset? You might respond, the house or your investment portfolio. I would like to explain to you of an asset you have often never considered. One that is very substantial.
That asset is your ability to earn an income. Why?
Let’s meet Frank.
Frank is an engineer. He is 35 years old and earns a salary of $60k a year and plans on working till 65. He has saved diligently since graduating. His investment account has a value of $75k. If I were to ask Frank what is his greatest asset. He would promptly answer saying my investment account.
Is that the case?
I would contend that his greatest asset is his ability to earn an income. Frank plans on working 30 more years at his current position. Ignoring inflation and cost-of-living adjustments, Frank stands to earn:
Working 30 more years x $65k a year = $1,950,000
That is a substantial sum. It is 26 times greater than his next largest asset.
We tend to not recognize our capacity to work as an asset. The concept is human capital. Gary Becker, an economist and Nobel Laureate, coined the term. It is the stock of knowledge, habits, social and personality attributes, including creativity embodied in the ability to perform labor so as to produce economic value. In other terms, the skills used to earn an income.
If earning an income is our greatest asset, what are we to do about it?
There are three key laws of earning income.
Law 1: Protect it
Your ability to earn may even be higher than the case study explained above, so the need to protect it is vital. Per the U.S. Census Bureau, nearly 1 in 5 people have a disability in the US. That is roughly 56.7 million people.
How do we protect our income?
We do so with a disability insurance policy. In the most simplistic terms, it is an insurance contract that pays a fraction of your income when you become disabled. That is as far in the weeds as I feel comfortable going in this article. These contracts can be complex to interpret so please consult a professional if you have questions concerning yours.
Law 2: We are all business owners.
Even as an employee, you are a business owner. You happen to have 1 customer that pays 100% of your income.
Why look at yourself as a business owner? Because you will see how you can increase the value of the business which is yourself. You can learn how to market yourself like a business. Maybe, there is a company with the right fit that will pay you 25% higher for your business resources than you current position.
This law is a change in mindset.
Law 3: Invest In Your Income
By engaging in the investment space, I regularly hear of the elusive investment that will generate a tremendous rate of return. If you were to receive a great return on an investment, let’s say 10%. But if your investment account was $10k, that would be a gain of $1k. That is nothing to sneer at. That is an excellent return, but let’s say you took 40 hours to discover that investment.
But let’s say you took that 40 hours and picked up a different skill that helped obtain a promotion that added an extra $30k a year to your salary. I would contend that for most of the cases, time spent investing in your knowledge and career is better than trying to find the next hot investment. If you are curious of how to learn a new skill, check out this article.
Your ability to earn income is critically important. Keep that in the forefront of your mind when you invest your time outside of work, family, and hobbies. We only have so many hours in the day.
Thank you for stopping by the library. Please share any remarks or questions you have on this piece. My direct email is email@example.com. I am grateful for your feedback.