what is human capitalWhen you look at your financial picture, it’s easy to get caught up in the numbers.

However, it’s important that you not focus too much on your net worth.

While you want to improve your financial situation, realize that it’s not just dollars and cents.

You need to improve your human capital as well.

What is Human Capital?

Chances are that you are aware that the decisions you make with your financial capital matter a great deal. However, the money you have now, and hope to have later, is only a part of the equation. You also need to look to your current situation, and understand how your human capital fits into the larger picture.

Human capital consists of the knowledge and skills you possess.

It’s what you have that can impact your earning potential later.

Economic theorist Adam Smith pointed out that talents make up part of one’s financial picture. The abilities that we have contribute to our earning power, and that is our human capital.

Your human capital impacts how much money you make now, and the skills and knowledge you develop can impact your future earnings. As a result, it makes sense to take the time to develop your own human capital, much as you look for ways to increase the amount of financial capital you have.

Increasing Your Human Capital

In many ways, increasing your human capital — particularly in a career sense — is about developing marketable skills that others are willing to pay for. It’s also possible to improve your human capital in ways that can allow you to make money on the side, or even help you start your own business, becoming self-employed.

Take a step back, and ask yourself what you have to offer, and what you can do to improve your offerings. Often, this means improving your skills, and improving your knowledge.

Your skills can be divided into two possibilities:

  1. Hard Skills: These are skills that represent something that you can do in a concrete manner. Hard skills include knowing how to use a particular software program well, or knowing how to operate heavy machinery. Being able to do something specific and tangible is the point of a hard skill. In many caes, you can be certified in hard skills to prove your proficiency, and encourage a pay raise or promotion.
  2. Soft Skills: These are a little harder to quantify. However, soft skills can be important. Soft skills include your ability to communicate (which is increasingly important in today’s world), as well as your leadership abilities and problem solving skills. Developing soft skills can make you valuable as a business person, or as an employee, in ways that aren’t always easy to define.

Find out what skills are desirable in your career field, or in your business, and work on developing those. You’ll improve your earning potential as you boost your human capital.

While you’re at it, you can also improve your knowledge. Learning is a great way to improve human capital. Understanding other cultures can make it easier for you to get along with international business contacts. A basic knowledge of psychology can help you be a better salesperson, and can help you understand others’ motivations. Your knowledge of how money works can help you invest more wisely, and make better financial choices altogether. This kind of human capital can be very helpful when building up your financial capital.

Put Your Human Capital to Work for You

Human Capital

Once you have increased your human capital, it’s time to put those skills and knowledge to work. Use what you have learned to start a business. Or, you can use your new skills to get a pay raise or a promotion. Your human capital, your earning power, should be used in a way that helps you advance your finances. Whether you are investing in something, or whether you are just trying to move up the corporate ladder, your human capital can help you advance.

As long as you are progressing in skills and knowledge, you are likely to improve your financial situation, and use your money wisely. Making use of your human capital is one of the best ways to secure financial freedom on your terms.


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