By: Ryan P. Dolan

“You are your own biggest asset by far. Anything you do to improve your own talents and make yourself more valuable will get paid off in terms of appropriate real purchasing power...Anything you invest in yourself, you get back tenfold. [And unlike other assets and investments] nobody can tax it away; they can’t steal it from you.”

Warren Buffett

Money. Wealth. Capital.

Whatever you call it, money occupies a lot of our attention. And yet in my experience people don’t seem to fully appreciate that their money consists of two distinct buckets. The first is rather obvious: the tangible and measurable financial capital you have today. Far less obvious is your innate human capital. Financial capital and human capital. Only when you understand these two forms of money and how they interact, can you begin to optimize both.

Human capital encompasses everything which allows you to thrive career-wise, whether as an architect, a software programmer, or a lawyer. It’s a composite of your hard and soft skills: your intelligence, experience, network, commercial sensibility, along with the persistence and grit that has propelled your success. It could be your unique entrepreneurial vision, your incomparable sales or negotiating skill, or your ability to see a little bit further over the business horizon than your competitors. Importantly it should consider your potential, how high your proverbial ceiling is and how likely you are to close that gap. Though you can’t put your hands on human capital like you can your financial capital, it is every bit as real and as important. Probably more so.

There are too many variables and unknowns to pinpoint the value of your human capital, but you can come up with a broad estimate. Take a 35 year old software executive: she makes $400,000 in salary and bonus; wants to work until she is 65, and has a current net worth of $2 million. Let’s say we anticipate her income to grow at the inflation rate of 3% per year for 30 years (I realize this is an oversimplification). Over the balance of her career, our subject will have earned a total aggregate income of around $19 million. As we know, a bird in the hand is worth two in the bush. Discounting that income stream to today’s dollars yields human capital of around $4-$5 million. So here’s our 35 year old, with $2 million in financial capital, and human capital of more than twice that. For high performing, high income professionals and business owners in their 30s and 40s, this is a common, if underappreciated, financial composition.

While most advisors focus on financial capital (it’s how they get paid after all), I work to maximize and integrate financial capital with human capital. An appreciation of the magnitude of human capital can help reorient client attention and focus. It clarifies for them how important it is to prioritize, preserve and augment their human capital. They realize they have far more control, influence and skill at managing the trajectory of their human capital than their financial capital, and as such should avoid straying into areas they don’t have domain expertise-like financial planning and portfolio management. This is a common risk for smart, accomplished people to do, but it is critical.

Working hand in hand with clients, I work to cut clutter, needless complexity, block out noise. We attack complacency, and negative inertia. I work to leverage a client’s precious and finite time by allowing them to outsource everything they don’t need or want to do, while ensuring they are focused on the handful of core, high-value tasks and priorities that are most relevant. When this process is done right, clients find their financial capital moves from being either an afterthought or a cause of anxiety to a source of security, stability and confidence to focus primarily on their core human capital and priorities.

I recently read a book which illustrated this interplay between human and financial capital. “Churchill’s Money” by David Lough is a fascinating look at Winston Churchill and his fraught relationship with money. Here is someone with undeniably high amounts of human capital: raw intelligence, bravery, an indefatigable work ethic, literary talent with unparalleled vision and insight. And yet Churchill was incompetent financially. Hopelessly so. I found it exhausting and demoralizing to read of Churchill’s chronic overspending, gambling, risk taking and just sheer financial foolishness over the span of decades. I can’t imagine living it.

You may say that Churchill achieved an immense amount with his human capital, and his financial difficulties didn’t seem to impact that. I disagree. Churchill struggled with periodic and debilitating depression throughout his life, “the black dog” he called it. It’s hard to see how his financial behavior didn’t aggravate that. His gambling and stock market losses caused his long-suffering wife, Clementine, stress and anxiety. Professionally, in the crucible of WWII, when Churchill needed all his focus and faculties, he was often dealing with an emergency financial issue such as a bank overdraft, an investment gone wrong, or a problem with the tax authorities. Finally, throughout his life, Churchill needed to be bailed out by wealthy supporters when his financial distress overwhelmed him, which leaves lingering questions about whether this impacted his political objectivity.

Give some thought to your human and financial capital. Are both working together, pulling an oar in the same direction? Or are they getting in the way of each other with negative implications for your life?

About Dolan Partners:

Dolan Partners is a holistic financial life planning and investment management firm, working hand in hand with professionals and business owners. We dive deeply into clients' financial lives, working to align their money with their unique vision, values and goals.

We offer complimentary introductory calls with prospective clients.

Learn more at www.dolanpartners.com

Dolan Partners LLC

100 School St.

Danville, CA 94526

This commentary on this website reflects the personal opinions, viewpoints and analyses of Dolan Partners Wealth management and Ryan P. Dolan, and should not be regarded as a description of advisory services provided by Dolan Partners Wealth Management or performance returns of any Dolan Partners Wealth Management client.

The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Dolan Partners Wealth Management manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.