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Why Investing In Your Short Term Can Pay Powerfully In The Long Term
Saving money can change your life. Saving for retirement, saving for a rainy day, saving for a home—saving for your future because “you never know.” Yet as critical as it is to save, you’ll want to think twice about saving every last penny. Why? There’s something your parents never did tell you, that the movies probably did: You’ve got to spend money to make money.
Now I’m not talking about going out and dropping thousands on the latest designer heels, or finally taking that golf trip with six friends to Tahiti. No, investing in yourself, especially when you’re young, is the most important investment you can make. Your financial capital is what you rely on when you enter and enjoy retirement, but human capital is what you need to understand as you begin your career.
Human capital is really all about your potential to succeed in the workforce. Put more technically, human capital is the value of our future earnings potential. Potential is the key word here: you work, you are compensated for your work with financial capital, and the more you maximize your ability to work, the more you are rewarded with financial capital.
Human capital is both saving and spending
Investing in yourself to learn new job skills or improving on the ones you currently have, puts you on the path to earn more, to be promoted, be a more valuable employee. Maximizing this potential—there’s that word again—is the goal, and determining how to go about that is not as tricky as you may think.
First, before making your retirement investment, ask yourself this: could a more immediate short-term investment be wiser than the long-term alternative? For example, taking a portion of your income and putting it towards, say, night classes. Or an Executive MBA. Or a certification in a skill that you do not wield. Perhaps it’s a public speaking course, a personal organization seminar — or additional training, that may put you on a fast track towards a promotion?
Such a consideration is critical, because any promotion or raise definitely grants you the chance to invest your (new, higher) wage in retirement plans without sacrificing your quality of life by depleting immediate earnings.
Invest in Yourself
Simply stated: Investing in yourself in the short term may help your retirement in the long term. This is a key distinction. Consider it before even approaching the question of how to form a strategy for your broader portfolio.
With human capital time is a factor. The younger you are, the less work experience you have, the more potential you have, and your human capital is nearly infinite. For many, youth has made way to sore backs and poor eyesight, which means your potential has decreased, and your human capital is limited. However, you’ve hopefully invested wisely and your financial capital (your portfolio) is much larger than that of our twenty- and thirty-something friends’.
The ultimate goal is to rethink your financial planning. Challenge the norm here—maybe the Roth IRA—and consider just how valuable investing in yourself, or maximizing your human capital, will be in the long term. It’s the smart way to spend money to make money.