A Practical Guide To Growing Your Human Capital (And Why It Matters)
“A goal without a plan is just a wish."
― Antoine de Saint-Exupery
It’s no secret that the trajectory of your earnings has a powerful effect on our future wealth. So, “How do we accelerate that trajectory?”
Our financial capital is measured in the dollars and cents currently in our bank, investment accounts and personal property. Our human capital is measured by our income earning power over our remaining lifetime. As we grow older, our financial capital usually increases, but our human capital declines. In our younger years, spending financial capital to increase human capital years is a valuable investment. For example, spending $400,000 on dental school makes financial sense for a 23-year-old, but it makes much less sense for a successful 45-year-old marketing manager.
In whose financial position would you rather be? The 65-year-old retiree with $3 million in financial assets, or his 30-year-old daughter with negligible net worth earning $80,000? The answer will depend on the rate at which she increases her earning power. If her income increases at an annual rate of 3%, her total lifetime earnings would total $4.8 million by age 65. If she manages to increase her income by 5% each year, her human capital would be valued at a whopping $7.2 million. So, besides spending money on education, how can we maximize our human capital and build our earning power? This is possible through a variety of non-financial means. It often comes down to self-knowledge and focus. So today I’d like to explore the topic and provide some tangible suggestions to answer the question, “how exactly can we maximize our human capital?” We’ll explore three evidence-based tools for doing just that.
Making the Most of Your Human Capital: Three Tools
1. Know What You Are Worth: Benchmark
One of the fundamental, and in some ways most difficult, paths to maximizing your human capital is to ensure that you are being paid your market value. Job announcements, such as those provided in the Bay Area by Angel List, provide actual employment opportunities and their expected compensation. I believe these tend to be more accurate than other free tools including such sites as Glassdoor and Payscale because they provide linkage to actual positions.
I know it would make my friends who work in HR tear their hair out to hear my say this, but I believe in applying for jobs you don’t intend to take. I share this for two reasons. First, there is no better way of knowing how much you can make on the open market than actually jumping into the market. Second, interviewing is a skill that is built with practice and the best time to practice is when you don’t mind failing. We’ll address the value of knowing and being able to articulate your key value propositions further on.
Before moving on, let’s be clear, I’m not advocating single-mindedly pursuing the largest paycheck. There are many great reasons to stay with an employer. Some factors that go into choosing to stay where you are include stability, work environment, quality of life, mentors, opportunity for leadership, location and, oh, yes, you might actually just love what you do.
2. Write Down Your 5 Year Plan (SMART goals)
It’s easy to develop a vague sense of what we would like to accomplish and where we would like to be in 5 years, but what makes the difference is writing this down. In the Elite Daily, Damian Pros summarizes the results of a study conducted with Harvard MBA students as follows,
“Harvard’s graduate students were asked if they have set clear, written goals for their futures, as well as if they have made specific plans to transform their fantasies into realities. The result of the study was only 3 percent of the students had written goals and plans to accomplish them, 13 percent had goals in their minds but haven’t written them anywhere and 84 percent had no goals at all. Think for a moment which group you belong to.
After 10 years, the same group of students were interviewed again and the conclusion of the study was totally astonishing. The 13 percent of the class who had goals, but did not write them down, earned twice the amount of the 84 percent who had no goals. The 3 percent who had written goals were earning, on average, 10 times as much as the other 97 percent of the class combined.”
Yes, combined. Does this motivate you?
By writing our goals down we clarify what we want and allow ourselves to filter opportunities. Both distractions and resistance are met with our resolve and clarity of purpose.
I would venture to say that spending 2 hours a week for the next three weeks developing and then reviewing your top five goals might be the most powerful tool you can use to increase your human capital and live the life you most desire. The SMART rubric is a powerful tool I personally use for my goal planning. A quick google search will help you dive into the world of SMART goals, but in short they are:
Specific- A specific goal answers the “Who? What? Where? When?” It allows you to measure your results and evaluate where you are in the process of accomplishing the goal. The difference between “finding a job” and, “beginning a position with a 15% salary raise, requiring less than 25 minute commute, and which allows me to work less than 50 hours per week, in the next 6 months” exemplifies the contrast between nebulosity and specificity. The latter is much more likely to be accomplished.
Motivating- The “M” in SMART is usually assigned to “Measurable,” but I think “specific” and “time-bound” cover this criterium. I prefer Motivating because we must truly want to accomplish our goals. It changes our outlook from “it would be nice if I did X, Y or Z,” to, “I am committed to Z because I truly desire to accomplish this.” We must take our goals personally. Along the journey of goal attainment things can get cloudy as distractions and opportunities muddy our path. Pointing ourselves back to why we are passionate about the result drives us to success.
Attainable- Writing goals down allows us to be honest with ourselves about what we really want. In my experience it can be a scary process. Including the attainability boundary allows us to dream big while knowing in our heart that it is possible. I’ve found it empowering.
Relevant- Relevant goals fit within the framework of larger goals. This qualification helps us avoid rabbit trails. It asks, “does this goal actually help me in accomplishing my larger purpose?”
Time-Bound- Time-bound goals have specific target dates for completion. Our natural tendency is to create goals without this boundary. We ask, “do I really want to be on the clock?” But a time-bound goal allows us to break down our final result into small steps. It’s our clock after all. So, if my goal is to become Chief Marketing Officer for a Fortune 500 company in 10 years I need to start thinking about the steps I have to take to get there and break them down into specific smaller goals. And all of this has to fit into that timeline. Time-bound goals force us to develop a system and process for their accomplishment.
A final thought: goals can change. Life is fluid and unexpected opportunities lead to openings we couldn't have imagined earlier. We may discover skills and passions we didn't know we had. Today’s 10-year goals may lose their draw as life’s circumstances change our perspectives. Still, trading one set of goals for another set is quite different from simply abandoning goals or never creating any in the first place.
3) Know and Focus on Your Strengths
People thrive when they build upon their natural talents. According to Gallup research individuals who use their strengths in their careers are six times more likely to be engaged at work, which directly correlates with both life satisfaction and career growth. In fact, “more than half (52%) of Americans who use their strengths for three hours a day or less are stressed, but this falls to 36% for those who use their strengths 10 hours per day or more.”
Our human capital and earning potential is tied to career growth, and career growth is expedited when we excel at our natural talents. Rather than focusing on overcoming our weaknesses, we can excel by knowing our skills and seeking out projects, tasks, and teams where we can use these skills. I have friends who at times struggle with using their vacation time, because they love using their talents at work and just miss the outlet. On the flip side, I know talented software engineers who feel uncomfortable managing people but found themselves “promoted” into roles where this became one of their primary duties. Guess who’s thinking about finding a new employer?
You can hone your career trajectory and grow your human capital with the following strengths-based process.
1. Develop an understanding of your strengths. This can be accomplished through informally journaling to chronicle what you enjoy most about your past and current roles, or exploring what have been keys to your success, and querying your friends, amicable co-workers and managers about what they see as your strengths. I found confirmation and encouragement in my own strengths as I went through the formal process of the Strengths Finder 2.0 and highly recommend it. You can also take a Myers-Briggs based personality test here. The barrier to entry is low (free), and it may be a helpful tool to see what motivates, energizes, and drives you.
2. Pursue roles and projects that use your skills, and run from projects that will sap your energy. Developing a track record of success in our strengths allows us to build trust quickly with co-workers and managers as we take on more complex work. This snowballs into further success.
3. Create a Personal Value Proposition that resonates with who you really are and allows you to sell your skills to others. In short, don’t be phony. Know what you are good at and “sell” this to others. The key traits that drive your success will double in power as you articulate them to others. Doors open when we know our talents and allow ourselves to thrive, pursue those opportunities and projects, and then articulate our success to managers or future employers in an authentic way.
A while back the Harvard Business Review blog ran two fantastic articles on Assessing Your Strengths and Building a Personal Value Proposition. Each of these put legs on the ideas I have offered here.
In closing, an honest assessment of your industry, your goals, and yourself—what makes you tick—are proven ways of growing both your earning potential and your job satisfaction. What do you think? Have you found this to be true in your own career? And do these thoughts motivate you to take tangible steps in maximizing your own human capital?