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What is Human Capital and Why Does it Matter?

What is Human Capital and Why Does it Matter?

Most people choose a career fairly randomly. I mean, maybe you had a high school counselor that helped you. Or you spent some time thinking about your major at college. But a job comes along and it’s like “Money? Let’s go!”

Your human capital, or the amount of money that you make over your lifetime is one of the biggest factors in your financial success. (Hint: the other is your expenses). No matter where you are in your life journey, it’s worth thinking about that trajectory. How steep is the income potential in your current career? Can you pivot to another career that has a steeper path? What is the job that you really want after your next job?

And how much did you think about your current work team and boss? Finding people that you enjoy working with and will invest in you makes a tremendous difference. Ask anyone who works with the best team: it’s a joy going to the office every day (or the zoom room

Matt and I discuss all these topics and more!

Find out more about Mike at and connect at


Matt: 00:00:00

Welcome to Real Financial Planning broadcasted on WKXL and available wherever you get your podcasts.

Matt: 00:00:05

I’m Matt Robeson and I’m joined as always by, you love the word proprietor, so I’m going to use the word proprietor the proprietor of Morton financial advice, the host of financial planning for entrepreneurs, the Mike Morton podcast.

Matt: 00:00:17

Mike Morton, welcome back!

Mike: 00:00:19

Thanks, Matt.

Mike: 00:00:20

I love being yield proprietor.

Matt: 00:00:22

Yee-old proprietor.

Matt: 00:00:23

You know, I really did that really did grab me last time.

Matt: 00:00:26

It’s like the proprietor.

Matt: 00:00:28

There must be some other old timey expressions for someone who runs a business, you’ve got your own personal financial advising business.

Matt: 00:00:37

You give advice for clients, you also hand out free advice to friends, but, in order to become a friend of Mike Morton

Mike: 00:00:44


Mike: 00:00:44

Don’t say that, wait don’t say that too loudly

Matt: 00:00:45

No, no, no.

Mike: 00:00:46

No free advice.

Matt: 00:00:47

It’s an incentive, I want People to check out your website, sign up your emails.

Matt: 00:00:51

You actually do, this is just like free stuff that you give out, people who subscribe to your emails.

Matt: 00:00:58

You give out a lot of really useful advice.

Matt: 00:01:00

Just this week you sent one out on, you know, how to do a little bit of financial housekeeping had it’s like free, quick hit stuff.

Matt: 00:01:07

So how do people sign up for that?

Mike: 00:01:09


Mike: 00:01:10

Thanks Matt.

Email newsletter, you can find on my website 00:01:11 also, actually, it’s funny, you mentioned that just this morning, I do a little bit on LinkedIn, so you can find me on LinkedIn.

Email newsletter, you can find on my website 00:01:20

If you go to that, a social network and I just, this morning signed up for their newsletter.

Email newsletter, you can find on my website 00:01:25

So I’m going to be posting my newsletters also on LinkedIn.

Email newsletter, you can find on my website 00:01:30

So you can follow on the newsletter there as well.

Matt: 00:01:32

Yeah, it’s worthwhile.

Matt: 00:01:33

It’s easy.

Matt: 00:01:34

And like, you know I, you just, you post a lot of great stuff and it’s funny, we were just talking about this off the air.

Matt: 00:01:41

You don’t earn anything off the fact that you provide all of this, you just, we do it.

Matt: 00:01:47

We partly do this show for fun.

Matt: 00:01:49

Uh, you know, we do it for all of the listeners on WKXL.

Matt: 00:01:52

You put the content into your podcast.

Matt: 00:01:54

I put the content into my podcast.

Matt: 00:01:57

That’s the Capitol closeup podcast.

Matt: 00:01:59

So hope people will check that out.

Matt: 00:02:01

But it’s a lot of free stuff.

Mike: 00:02:03


Matt: 00:02:03

Speaking of creating some value for people, you and I, we talked about a story a few weeks ago on one of our shows where I told this anecdote about, I used to work in Congress for a member of Congress.

Matt: 00:02:16

I’m not even going to name him cause it’s a little bit of an embarrassing story, but, he was talking to an economist who was explaining that there’s this idea of.

Matt: 00:02:25

Value-added goods.

Matt: 00:02:26


Matt: 00:02:26

You can take raw materials And then you do some workmanship, some craftsmanship on them and they become value added.

Matt: 00:02:33

And he was saying, you know, you can think about the same thing when it comes to human capital.

Matt: 00:02:38

You can add value.

Matt: 00:02:39

Well, my boss kind of clumsily inserted this into a whole bunch of political speeches.

Matt: 00:02:45

And, and his turn of phrase was, you know, what we need to do is add value to people, which we had to explain to him came across as, and he sounded a little bit like Dr.

Matt: 00:02:53

Evil when he gave these speeches, he was like, we need to add value to worthless people.

Matt: 00:02:57

And so I, that just not great, not a great way to address your constituents, but this kind of sparked a thought for you, which is we don’t think about human capital enough.

Matt: 00:03:07

When we think about investing.

Mike: 00:03:09

Yeah, it’s funny.

Mike: 00:03:10

The value add.

Mike: 00:03:11

I love that.

Mike: 00:03:12

You know, we spend so much time thinking about portfolios and investing and the economy and, and what’s the market look like today.

Mike: 00:03:20

But we don’t spend much time, thinking about your biggest asset in so many ways, which is your earnings, what you make every year and not just this year, because that might not be, compared to your portfolio, depending on where you are if you’re just starting out, you’re probably make way more than you have invested.

Mike: 00:03:38

But if you’re in the middle of your career or towards the end, you’ve hopefully save some money up.

Mike: 00:03:43

And so the earnings this year, you know, might not be significant compared to what you already have in the bank that’s growing for retirement.

Mike: 00:03:50

But when you not just take this year’s earnings, but all your future year’s earnings and the earnings growth, your career path and all of that accumulation that you’re going to make in the future, it’s significant, very significant.

Mike: 00:04:05

And we don’t spend enough time talking about how to maximize that.

Mike: 00:04:08

We talk about maximizing where your investments are and portfolio strategies, but what about maximizing your human capital as well?

Mike: 00:04:16

All those, what we say future potential

Matt: 00:04:18


Matt: 00:04:18


Matt: 00:04:19

And so I’m really glad you define that term because we are not implying any worthlessness.

Matt: 00:04:24

On the part of our valued listeners and viewers we’re just saying, we all do this, right, that’s that’s what going to school is about is improving your future earnings potential.

Matt: 00:04:35

Maybe It’s about rounding yourself out as a person and making sure you can dinner parties, but yeah.

Matt: 00:04:39


Mike: 00:04:39

Who cares Matt.

Mike: 00:04:40

It’s just about future earnings.

Matt: 00:04:42

this is, This is the value.

Matt: 00:04:45

I went to a dinner party at your house once.

Matt: 00:04:47

And I was seated next to a friend of yours who is, uh, a research scientist who is, was looking at sharks.

Matt: 00:04:53

And I was like, you know, do you, does any of your work relate to shark cartilage and its effects on cancer?

Matt: 00:04:59

He’s like it does actually relate to that.

Matt: 00:05:02

And it’s like, I don’t know anything about anything.

Matt: 00:05:04

This is why I went to school because I got a well-rounded liberal arts education.

Matt: 00:05:08

It’s just so I can go to dinner parties and make conversation with people on random topics, but people do this all the time.

Matt: 00:05:14


Matt: 00:05:14

You’re make inherent investments.

Matt: 00:05:16

You forego, some current earnings.

Matt: 00:05:19

I mean, All of us have made that choice.

Matt: 00:05:22

If you’ve gone to college, you could have started work instead of going to college, but you’re making an implicit investment.

Matt: 00:05:28

You’re foregoing some earnings now for greater future earnings.

Mike: 00:05:32


Mike: 00:05:33

That’s exactly right.

Mike: 00:05:34

So that’s one thing to mention here is anytime not just, high school and college, but any kind of career change, or even within your career, you can go back, get more education.

Mike: 00:05:45

And that is exactly to your point, Matt, hopefully boosting your potential future earnings.

Mike: 00:05:50

That’s why you do it.

Mike: 00:05:50

That’s why you go to night school or you take a year off and go learn some other trade to get into another industry so that you can make more in the future.

Mike: 00:05:59

So I want to point out here that we often talk about this, when you’re younger, you know, those college kids, or high school kids go to the career counselor and like what kind of career?

Mike: 00:06:08

And you look at, you know, oh, starting salaries for this career or that career That could make a big difference in your choices there because you do have, you know, hopefully say 40 years of potential earnings.

Mike: 00:06:19


Mike: 00:06:20

That’s a lot, but what I want to highlight here as well are two things when you think about that, so if you’re young and you’re, in that situation, don’t think about just the starting salary where that career, you know, starting salaries in this, in this geographic area for this career.

Mike: 00:06:35

Also think about the salary growth within that career.

Mike: 00:06:40

How steep is a potential growth within that career path, or how flat is it?

Mike: 00:06:46

Because if we’re talking future earnings, just like your investment portfolio, you hope that it’s a steeper curve, you know, every year earning and getting more and more per year in that compounding effect.

Mike: 00:06:58

So the same is true with your jobs.

Mike: 00:06:59

That’s one thing to think about.

Mike: 00:07:01

And the second thing is, even if you’re not in that starting off your career, even if you’re in the middle of your career.

Mike: 00:07:07

You might still have 10, 15, 20 years of working left and think about that for a minute.

Mike: 00:07:13

A long time of earnings year in and year out.

Mike: 00:07:17

Have you plateaued, that earnings growth, or are there opportunities to shift or take a job or a career path that again, has that steeper curve, maybe it’s taking a step back in the meantime for one, two or three or four years.

Mike: 00:07:30

But over 10, 15, 20 years, it’s got a steeper growth.

Mike: 00:07:33

So a couple of things throwing out your way, Matt, to think about.

Matt: 00:07:37

Well, I mean, first of all, that exact dynamic, if you don’t remember that, like if your brain is, so hazy that you don’t remember that career counselor conversation, um, you know, if it was long enough ago for you.

Matt: 00:07:47

You can actually just go out and play the board game the game of life, because that’s exactly what happens.

Matt: 00:07:53

You’re kind of presented with that calculus as part of the game, which is actually quite realistic that you get these cards and they say, here’s your starting salary.

Matt: 00:08:01

And you always want to make the choice to go to college.

Matt: 00:08:04

Matter of fact, I just did a show about this as part of the great ideas podcast, where I interviewed an expert on education policy.

Matt: 00:08:11

And we’re talking about whether or not the Biden administration should do more to cancel student loans.

Matt: 00:08:16

The Biden administration has already canceled about $17 billion in student loans, it’s the most of any president in history, but he’s under a great deal of pressure to do even more.

Matt: 00:08:26

And in fact, he’s just announced that he’s going to, continue the pause on student loan interest payments until August.

Matt: 00:08:34

So it’s an issue that’s a hot topic.

Matt: 00:08:36

So the first thing I asked, this expert and people should check this out.

Matt: 00:08:39

And Michelle Demeano is her name, in the podcast, is, is it still a paying proposition to go to college?

Matt: 00:08:45

Is that still a worthwhile investment or does it matter?

Matt: 00:08:48

And she said, look, there’s a ton of research on this and that’s why in the game of life, the smart move is always at both in real life, you know, always make that investment in yourself because you do make up.

Mike: 00:09:01

Well, wait, I’m curious.

Mike: 00:09:02

Wait, I’m curious on that one because yeah, the research right.

Mike: 00:09:06

It’s the same thing in my industry, if you look backwards and see what has happened.

Mike: 00:09:08

So the research is looking backwards and saying, oh, the research we’ve done over the last 10, 20, 40, 50 years shows that going to college was a worthwhile investment.

Mike: 00:09:18

But past performance is not indicative of future earnings.

Mike: 00:09:23

So is that still true?

Mike: 00:09:25

There’s so many different opportunities.

Matt: 00:09:27

It’s actually getting worse.

Matt: 00:09:29

I mean, The gap is increasing it apparently right now, the difference just going to college, not going to college is an average of a million dollars over the course of a career.

Matt: 00:09:38

So it’s a lot.

Matt: 00:09:40

But again, I urge people to check out the show.

Matt: 00:09:42

It’s a very interesting follow-up question because one of the things we raised is that there are big differences when it comes to professions.

Matt: 00:09:49

So for example, as our longtime listeners know, my wife is a doctor, a doctor, that’s a relatively higher paid profession.

Matt: 00:09:57

She would have made more if she’d become a plumber.

Matt: 00:10:00

And so there are definitely some career tracks where there are certifications, it’s not necessarily a college track, or it could be a.

Matt: 00:10:09

two-year college track.

Matt: 00:10:12

It doesn’t have to be a four-year college track where your earnings potential is greater.

Matt: 00:10:15

So there are definitely variations.

Matt: 00:10:17

Your own experience may vary, but as a general matter on average, it’s still a paying investment.

Mike: 00:10:23

Other interesting thing about that.

Mike: 00:10:24

There’s another instance we keep referencing the game of life.

Mike: 00:10:27

There’s another game.

Mike: 00:10:28

I really like, I think it’s called rat race and what it is the same idea you have careers, but what this game is showing you.

Mike: 00:10:35

Is that it’s about your lifestyle, it’s the, the expenses, so sure you can become the doctor, you pull that card.

Mike: 00:10:42

Oh yeah.

Mike: 00:10:42

I want to be the doctor making a nice high income, but it also lists your expenses.

Mike: 00:10:46


Mike: 00:10:46

Cause you’re a doctor and you need to drive the nice car to work, to show up in the parking lot.

Mike: 00:10:51

And the expectations around being a doctor and you get this nice family everything.

Mike: 00:10:54

Oh, your expenses are also really high.

Mike: 00:10:56

And So what you’re trying to do in this game is, build up that retirement portion.

Mike: 00:11:01

Right so get out of the rat race and it’s just as hard or harder when you’re the, high income, but high expenses versus, regular income or maybe a little bit lower income, but also lower expenses.

Mike: 00:11:15

It’s easier to become financially independent.

Mike: 00:11:18

So I don’t want to make this episode about that, but the expense side of the equation makes a massive difference for obvious reasons.

Mike: 00:11:25

Just how much you can save at the end of the day.

Matt: 00:11:29

Yeah, this is what’s known as the Patrick Ewing principle during the player lockout in the NBA in 1999, he was quoted to his great detriment of saying, “hey, what people don’t understand is NBA players make a lot of money, but we spend a lot of money too.”

Matt: 00:11:42

And that’s why they were holding a charity to raise money for needy NBA players, which was not their greatest PR moment.

Matt: 00:11:48

I have to tell you, I, you know, there’s so many directions we could go with with this discussion.

Matt: 00:11:53

And I think maybe the last two points you made kind of come together because you were talking about.

Matt: 00:12:00

A moment ago about how there’s an aspect of this is it’s not just getting that card early in the game of life going to see the career counselor and trying to decide what career track you go.

Matt: 00:12:09

It’s also about decisions you make over the course of your career about when to take a risk.

Matt: 00:12:14

And when to invest.

Matt: 00:12:15

And that also kind of comes to the point you were just making about lifestyle, because ultimately this is about, you say this consistently, what you do as a financial planner with your clients is partly about understanding the ins and outs of taxes and portfolios and risk and all that.

Matt: 00:12:32

But it’s also about like, well, what floats you.

Matt: 00:12:36

Man or lady like, what is it that you want out of your savings and investment?

Matt: 00:12:41

So many of your clients are entrepreneurs.

Matt: 00:12:45

They are people who are in the tech industry or starting a business, and implicitly what they’re doing is they’re taking a risk there.

Matt: 00:12:53

They’re willing to forego some near term salary and some, some guarantee of an income for a higher upside potential, in the future, that’s very uncertain and it could have a big payoff.

Matt: 00:13:08

It could not.

Matt: 00:13:09

How do you manage those kinds of conversations with your clients?

Matt: 00:13:13

When they’re thinking making that kind of an investment in themselves, one that’s inherently risky.

Mike: 00:13:18

Yeah, well, there’s a couple of comments there.

Mike: 00:13:20

One is make sure you’ve got a good runway, for you and your family.

Mike: 00:13:24

If you’re going to be taking that kind of a risk, now that risk.

Mike: 00:13:27

could be trying to start your own business, that has one set of risk.

Mike: 00:13:30

It could be, like we said before, going back to school because you’re kind of dead in the career you’re in, or you’ve reached a point and just not enjoying this anymore I really want to do something slightly different.

Mike: 00:13:39

I want to pivot, so you can go back to school and you could just take another job.

Mike: 00:13:42

You don’t have to start your own business, but it’s the same idea when you’re taking a step back from your income and savings.

Mike: 00:13:49

Make sure that you and your family are comfortable with a longer time horizon than you would expect.

Mike: 00:13:55

One year we’re going to have less income, but then I’ll be right back at it, eh, maybe two or three years, you know, and make sure you had that good understanding with you and your family.

Mike: 00:14:05

That you’re all on the same page together, that that’s what we’re doing and supportive.

Mike: 00:14:10

And this is where we’re going to go and make sure you have a portfolio that can power that you obviously need you don’t cash in the bank.

Mike: 00:14:16

If you have ongoing expenses and things like that.

Mike: 00:14:19

The other thing I’ll say around that, and again, for both of those kinds of paths, hey, trying to start your own business or have your own business and trying to grow it and the risk involved there, or just going back to school and then, you know, trying to find another job in an industry, both of those I’ve found.

Mike: 00:14:34

The people coming out, the other side are very, very employable

Matt: 00:14:38


Mike: 00:14:39

because even if you start your own business, I’ve got some examples of friends and myself included, I started a business, it was successful.

Mike: 00:14:46

Start another one, not successful.

Mike: 00:14:47

I’ve got friends that started, you know, different businesses or were involved in startups that were not successful.

Mike: 00:14:53

I mean, That’s that’s the nature of startups, many of them are not successful, but coming out the other side, the network, they have the people, they know the work they’ve put in, even if they’re not successful, quote, unquote of like, you know, getting a big payout or a big company, you know on a growth curve.

Mike: 00:15:08

They’re still highly employable.

Mike: 00:15:10

The skills you learn going through that type of experience is unbelievable, so that again is feeding back human capital.

Mike: 00:15:17

Even if you start your own business and it’s not successful, I find you as a person will be very successful.

Matt: 00:15:25

You what that reminds me of is a concept that I learned, uh, boy, this is going to sound like I’m sort of name-dropping here.

Matt: 00:15:31

I was very fortunate to take the Harvard negotiations course, which is sort of considered the gold standard of negotiations.

Matt: 00:15:40

And then I read this great book by Chris Voss about, you know, he’s a former hostage negotiator for the FBI where he said, yeah, they get it all wrong.

Matt: 00:15:46

So whatever, I’m not trying to dismiss it, but there’s a concept in that classic negotiations course called BATNA.

Matt: 00:15:54

Which stands for best alternative to a negotiated agreement.

Matt: 00:15:59

And part of the game going into any negotiation is to think about if this doesn’t work out, if I can’t strike the deal that I want to strike, what are my alternatives?

Matt: 00:16:10

What are the outcomes that I’m going to achieve?

Matt: 00:16:12

And the better your BATNA is, the better those outcomes are.

Matt: 00:16:17

The stronger your position in the negotiation, because you could always walk away.

Matt: 00:16:21

And it just, it comes to mind, obviously, because of what you were just saying, which is, if you’re thinking about taking a risk, or if you’re thinking about even a more straightforward investment, like I’m going to, take a night class, I’m going to expense and I’m going to gain this certificate or this skill.

Matt: 00:16:41

Understanding kind of what the fallbacks are.

Matt: 00:16:44

What’s sort of the worst thing that comes out of this.

Matt: 00:16:47

It strikes me as so important.

Matt: 00:16:48

And especially if you’re going to be an entrepreneur, because that never even occurred to me that, well, wait a second.

Matt: 00:16:54

If this doesn’t work out the way I want it to as a startup, how am I going to market myself to my next potential employer?

Matt: 00:17:01

What contacts am I going to develop as part of this process?

Matt: 00:17:05

What skills am I going to say that.

Matt: 00:17:08

I’ve acquired that’s a whole set of considerations that actually changes my BATNA and changes my evaluation of how big a risk this is.

Mike: 00:17:17

Oh, it’s unbelievable.

Mike: 00:17:18

It’s unbelievable, Matt.

Mike: 00:17:19

I mean, just think about, I’ve worked in a number of different industries with different people and teams and companies, and I can tell you when I’m meeting someone new or looking at them and thinking like, I might hire this person to work with this person, or just meeting somebody if they have gone out And tried to start a business, even if that business has failed I mean, you just have utmost respect for someone that’s going out there and taking those kinds of risks.

Mike: 00:17:43

And not only that.

Mike: 00:17:45

You know, To go out and try it, but also just the number of skills that, you have to try to be good at starting your own business is unbelievable.

Mike: 00:17:54

So I’ve always felt this, that, you know, I’d rather see someone try to start their own business, then go to business school, because trying to start your own business is just a real lesson across the board.

Mike: 00:18:07

How to do everything from.

Mike: 00:18:09

I mean, just everything there is on learning about business and finance and running a business and people management and client relationships and everything.

Mike: 00:18:17

So it’s a great learning experience.

Mike: 00:18:19

So an analogous to taking that late class or something else, would you rather the person just give you a resume and say, “Hey, I’ve been working at this job for four years”, or, “oh, I’ve been working at this job for four years and I’ve taken night classes”.

Mike: 00:18:30

I mean, you know, what’s going to stand out there.

Mike: 00:18:32

So investing in yourself, especially again, going back to, if you’ve got 10, 20, 30 years ahead of you investing in yourself consistently will pay huge dividends down the road.

Matt: 00:18:45

How do you evaluate and how do you help your clients evaluate some of those investments in oneself that are less obvious, less apparent.

Matt: 00:18:56

So, Let me give you an example, My daughter, I was talking to her about what she was working on during some unstructured time, she’s in elementary school.

Matt: 00:19:05

And she said, well, we have a typing competition where they can kind of evaluate themselves a program for speed And accuracy.

Matt: 00:19:14

And, first of all, she’s getting manipulated by a gamified experience because you can see their scores and class.

Matt: 00:19:21

And so she says, well, look, I’ve been, uh, I’ve been, I can coming back.

Matt: 00:19:24

I’m not doing any other activities, cause I don’t wanna, I out a second place.

Matt: 00:19:27

So queue one up there, I guess, for for

Mike: 00:19:30

Or she can just feel like she could cruise.

Mike: 00:19:31

She could just cruise through it.

Mike: 00:19:33

Hey, I’m already in number two, I can blow this off and doing fine.

Matt: 00:19:38

Ah, lose that.

Matt: 00:19:39

My question is who’s number one.

Matt: 00:19:40


Matt: 00:19:41

So, okay.

Mike: 00:19:42

Wait, why isn’t my daughter, number one.

Mike: 00:19:44

What’s going on here?

Matt: 00:19:45

But, well, that’s now see that’s the attitude of a real winner.

Matt: 00:19:51

It’s like, how do we take out the other kid?

Matt: 00:19:54

What I separate is like, look, I know there’s some other things you want to work on during that time, but at least the upside here is becoming a faster and more accurate typist is the type of skill that will pay off for you throughout the rest of your schooling and your professional life.

Matt: 00:20:10

If I could type faster and more accurately, I would be a lot more efficient in my work.

Matt: 00:20:15

Especially as a writer, I would get a lot more done.

Matt: 00:20:18

It pays off, there’s all kinds of investments in oneself that one can make along the course of being at a job.

Matt: 00:20:27

I was offered the opportunity to get a certificate as a project management professional, so there are formal opportunities, but there are also kind of informal things where you just learn how to do things and it takes your resources and your energy and your attention.

Matt: 00:20:41

Do you work with your clients on thinking about things like that, or how about you yourself?

Matt: 00:20:45

How do you think about from a financial perspective, those kinds of investments in yourself?

Matt: 00:20:51

Because we only all have so much energy time focus and attention, and you can’t invest in absolutely everything.

Matt: 00:20:59

So how do you think about that.

Mike: 00:21:01

Yeah, that’s a really good question, Matt.

Mike: 00:21:03

I don’t really think about that myself or with my clients in that way.

Mike: 00:21:08

And I probably should.

Mike: 00:21:09

It’s a big piece of your financial future.

Mike: 00:21:12

I’m fortunate enough to work with just really smart clients that are already doing a lot of those things I feel.

Mike: 00:21:19

But I will say this, as you were describing those situations, I was just reflecting on the people that have been most impactful in my life or my work environment.

Mike: 00:21:29

And they have those characteristics of wanting to consistently do the best job they can, and consistently improve what they’re doing.

Mike: 00:21:39

And I feel it’s all of that.

Mike: 00:21:40

So it’s not just like an explicit, hey, I got this degree, by going to night school, but it’s, yeah, I want to do a better job in this thing, how can I do that?

Mike: 00:21:47

I got to read a few articles, to, bring up my game.

Mike: 00:21:49

I don’t know a lot about this area, so I’m going to spend a few hours of my time in the evenings, read some articles to research this area, or I’m going to practice, it’s the same way we do exercise for health.

Mike: 00:21:59

Hey, I got to do a little bit every day to keep the body in tip top shape so I can perform my best, whether it’s at work or on the field or whatever.

Mike: 00:22:08

So I do think it’s very important and you will separate yourself on your work career the more you invest in those small skills and the big skills as well.

Mike: 00:22:20

Absolutely, it’s very noticeable to those around you.

Matt: 00:22:25

So do you go through any type of a formal exercise?

Matt: 00:22:30

I know you’re a huge fan of spreadsheets, for example, in terms of trying to help people walk through.

Matt: 00:22:36

Whether, it’s a kind of more traditional investment in your own human capital like you’re getting a certification, you’re going to try and pick up a skill.

Matt: 00:22:44

You’re going to become a faster typist, or a bigger leap type thing where it’s like, okay, I’m going to take a risk do you formally walk through that in terms of thinking about, well, here’s sort you’re foregoing, here’s the present discounted value of that.

Matt: 00:23:01

Here’s the potential for earnings.

Matt: 00:23:04

Here’s how you multiply that out over years.

Matt: 00:23:06

Do you actually go through that kind of an exercise with people?

Mike: 00:23:09

Yeah, we definitely do, and the way we do that is by looking at future earnings and so we have a category when we’re looking at, the potential future for your situation with your family.

Mike: 00:23:20

We put in there how much income.

Mike: 00:23:22

And many people, might be making this amount of money and it’ll go up two or 3% a year so we’ll put that in there.

Mike: 00:23:28

But many people also want to look at the trade-off.

Mike: 00:23:30

What if I take a different job?

Mike: 00:23:32

When can I take a job where I don’t have to work so hard and I’ll potentially, make a lot less money?

Mike: 00:23:37

What about if I take some time off, with my family, but then I come back.

Mike: 00:23:42

And I changed careers.

Mike: 00:23:43

I go from the public sector, to the private sector where I might be able to make double the amount of money, working for somebody else.

Mike: 00:23:50

And so we do look at all those scenarios.

Mike: 00:23:53

Which is what you’re saying, that future earnings and the growth of those earnings in a broad sense.

Mike: 00:23:59

And my clients, I don’t get into specifics of how they’re going to do it.

Mike: 00:24:03

Hey, are you going to night school or can you improve these skills or are you going to go and get a new degree?

Mike: 00:24:08

My clients really know their field and what they’re doing.

Mike: 00:24:11

So they come to me and say, look, I could make X amount of dollars if I took this other job, what does that mean for my financial future.

Mike: 00:24:18

Cool, let’s figure that out.

Mike: 00:24:19

So it’s those kinds of trade-offs we definitely look at because they’re super important and we find Matt, the biggest drivers of your financial freedom are how much you make your income.

Mike: 00:24:33

And secondly, how much you spend your expenses, you put those two things and you change them by 10 or 20% over 10 30, 40 years.

Mike: 00:24:44

That makes a massive difference in your success.

Matt: 00:24:47

I just want to comment on that last point.

Matt: 00:24:50

And then I want to circle back to this question of how you evaluate formally or informally some of these prospects for investing in yourself.

Matt: 00:24:58

I had kind of an opportunity at a certain point, I was already in graduate school and I was thinking about doing a dual degree program with law school.

Matt: 00:25:10

And again, I will.

Matt: 00:25:13

I mean, It was an opportunity to go to Harvard law school was really what was in the offing.

Matt: 00:25:19

It’s very hard to not be financially successful if you’re willing to work pretty hard.

Matt: 00:25:23

If you come out of a law school like that.

Matt: 00:25:26

And it just was really interesting to me.

Matt: 00:25:29

I mean, The first focusing question that was presented to me was, hey, Matt, do you want to be a lawyer?

Matt: 00:25:34

And I was like, oh no, And the person asked me the question was like, well then why would you go to law school?

Matt: 00:25:40

That was a head scratcher.

Matt: 00:25:41

And that was most, that was a most of what pushed me off of that path.

Matt: 00:25:44

And I didn’t regret it.

Matt: 00:25:46

But the other thing that I think relates back to what you were just saying is that a mentor of mine said to me, you know, you need to be cautious about this.

Matt: 00:25:55

And what he was talking about was not the earnings potential side, but the spending potential side, because he said, here’s, what’s going to happen to you.

Matt: 00:26:04

You go to law school and then everyone in your life is going to advise you that to make your degree worthwhile, you really will need to go to work for a law firm for a few years.

Matt: 00:26:13

That’s more or less the pathway that attorneys are advised to take.

Matt: 00:26:18

And what you will find is that you will be competitive.

Matt: 00:26:20

You’ll want to go to, the best law firm you can.

Matt: 00:26:25

It’s a treadmill.

Matt: 00:26:26

You’re getting on a treadmill.

Matt: 00:26:28

And after you come out of the other end, you think of that treadmill.

Matt: 00:26:32

You’ll find that you’re 3, 4, 5 years older.

Matt: 00:26:36

Maybe you’ve gotten married.

Matt: 00:26:37

Maybe you have a house.

Matt: 00:26:39

And there’s a certain lifestyle that goes with everything that you’re doing now you are on that treadmill and you have to keep running on it in order to keep up with everything that you’ve sort of accrued on the spending side.

Matt: 00:26:52

It was a very compelling image that my mentor was painting for me.

Matt: 00:26:57

Is it always true?

Matt: 00:26:59


Matt: 00:26:59

Are there many other pathways?

Matt: 00:27:01

Yes, but I saw what he meant, which is that sometimes these things that appear to be investments on your side.

Matt: 00:27:08

Can also be putting you onto a pathway that can have a trap in it that can have, or can be a pathway that leads to an entire lifestyle and life set up that isn’t really what you want.

Matt: 00:27:20

So you really do need to think about the spending aspect as well as the income aspect and also, is this a pathway in terms of your overall holistic life that you really want.

Matt: 00:27:34

And it’s just a more nuanced way of thinking about these kinds of adding to human capital type considerations than I would have thought of myself.

Mike: 00:27:44

Yeah, I, what I love about that is the painting the picture and putting yourself in that environment, and is that the environment you want to live in?

Mike: 00:27:55

And it goes back to the, play the movie And, I do do this with my clients.

Mike: 00:27:59

We look in the future and I try to put them in the future and say, how does that feel?

Mike: 00:28:07

And it’s the feelings that are, that will really lead you to the correct answers.

Mike: 00:28:12

Not your thinking.

Mike: 00:28:14

Not, I think this will be great because the thinking will lead you to, oh my god.

Mike: 00:28:17

That salaried sounds awesome.

Mike: 00:28:19

Like who doesn’t want, double the salary that sounds amazing.

Mike: 00:28:22

But double the salary is double the lifestyle.

Mike: 00:28:24

And I love what you said, Matt.

Mike: 00:28:26

It’s so true.

Mike: 00:28:28

So try to put yourself into that future state, whatever you’re contemplating, whether it’s that startup or a different career or a choice of a path, put yourself three to five years.

Mike: 00:28:39

Imagine what life will be like, talk to people so that you get a good picture of what it potentially will be like.

Mike: 00:28:45

Because your environment massively influences who you are.

Mike: 00:28:50

We like to think nah, I’m choosing my own path.

Mike: 00:28:52

Yeah, unfortunately that’s not true.

Mike: 00:28:54

Your environment, um, is really creating a lot of that

Matt: 00:28:57

Actually it’s, so interesting that you landed on that last comment, because that leads directly to what I had put in the parking lot five minutes ago, which was I was asking you about the formal approach that you take to considering investments in oneself, other job, education, et cetera.

Matt: 00:29:17

And it just reminded me that same mentor who told me beware of the law school treadmill.

Matt: 00:29:22

Actually I’ll call him out he’s kind of a famous figure, David Gergen, the former presidential advisor and CNN commentator, was one of my grad school mentors.

Matt: 00:29:31

And he provided me with the two most useful rules of thumb for considering future job moves that I’ve ever heard.

Matt: 00:29:41

And I don’t have the same role you do in advising clients on their financial future.

Matt: 00:29:47

But one of the things that happens when you work on capitol hill is there are a lot of young people who want to work on capitol hill and you talk to a lot of young people looking for job advice basically.

Matt: 00:29:57

And these are the two rules of thumb that I always passed along their sort of copyright David Gergen’s job seeker lessons.

Matt: 00:30:08

Number one was think about what job you want after your next job, which I found was a great focusing mechanism for looking down the road, but being specific.

Matt: 00:30:23

So you’re playing the movie of it, but you’re not locking yourself in to a pathway that you don’t control.

Matt: 00:30:32

So it’s one thing to say, look, I’m going to get this certification because that’s what I need to get a promotion in my job and that’s worthwhile.

Matt: 00:30:39

Well, that’s easy, but it’s another thing if you’re thinking about, I want to leave and go to grad school or any other kind of school, or I want to take this job because here’s the direction I want my career to go.

Matt: 00:30:54

Well then think about what job you want after your next job that gives you a much better orientation toward your overall direction and then back to your point about longer term earnings trajectory.

Matt: 00:31:06

The other point that he raised rule number two was hire your boss intelligently.

Matt: 00:31:13

So when you’re choosing different pathways it’s like the advice back in college the professor matters more than the course, right?

Matt: 00:31:21

It’s the same thing with bosses.

Matt: 00:31:23

Having someone you work for who will invest in you and in developing you and has an eye out for you and your career trajectory and wants you to succeed.

Matt: 00:31:34

That’s more important, much of the time than the specific job you have now you will get farther faster by having someone above you in an organization who’s willing to invest in you.

Matt: 00:31:45

So there you go, David Gergen he probably charges a lot for this kind of advice I am passing it along to all of our radio listeners for free.

Mike: 00:31:55

That’s right.

Mike: 00:31:56

I love that.

Mike: 00:31:57

The second point in particular, the first one, of course, thinking ahead and trying to design that career path and that gets back to what we were talking about in terms of maybe the steepness of the earning potential or just what you’re interested in doing, really looking out, more than a couple of years to that next thing, but I love what you said about hiring your boss.

Mike: 00:32:17

And I always say it in terms of the team you’re working with as well.

Mike: 00:32:20

Think about your job right now and think about your biggest frustrations in your job.

Mike: 00:32:30

Are those frustrations, the actual work, when you get those quiet couple of hours and you’ve got to type away and do the work, is that stuff really like dragging you down?

Mike: 00:32:40

Or is it some relationships in the teams, the client’s, the boss, whatever it is, that’s really, the biggest frustration.

Mike: 00:32:48

I can pretty much guarantee it’s not the actual work.

Mike: 00:32:52

The actual work you’re doing, and it may be boring.

Mike: 00:32:55

It may not be like the greatest it doesn’t maybe bring you a ton of energy, hopefully it does you know hopefully, but it might not, but it’s probably not a huge frustration either.

Mike: 00:33:03

So to your point, Matt, how we spend our day is all about the relationships and how that energize’s you, are they energizing you?

Mike: 00:33:12

Or are they bringing you down?

Mike: 00:33:13

And I love the way you said the boss in particular mentoring you and helping you, and that is massive just massive because you’re going to feel so great with someone that is looking out for you, helping you, giving you good advice, giving you fantastic support, helping you do the best in your job.

Mike: 00:33:32

When you hit roadblocks, those are the best kind of team members to have alongside you.

Mike: 00:33:36

So really when you’re looking at careers and changing or shifting or interviewing, really take a look at the team that you’re going to be involved in and see how energetic and enthusiastic that team is.

Matt: 00:33:49

Look there’s some heavy duty intellectual firepower behind your last point.

Matt: 00:33:54

I was forced in French class to read No Exit by John Paul Sartre.

Matt: 00:34:01

And the line that sticks with you after reading it is hell, is other people and boy is that right?

Matt: 00:34:09

And you know, that was the whole idea is that.

Matt: 00:34:12

The play profiles, three people who are perfectly mismatched for one another and drive each other crazy And they’re stuck together forever.

Matt: 00:34:21

And that’s the No Exit part of it.

Matt: 00:34:23

it’s like that other philosopher, Chris rock said, people say life is short…

Matt: 00:34:26

no, no, no, life is long.

Matt: 00:34:28

If you make the wrong decisions and that’s sort of the idea here and nowhere is that more true?

Matt: 00:34:35

Look, you don’t always get the choice of your boss believe me, I’ve had plenty of jobs.

Matt: 00:34:39

I mean, look, my high school job was at a video store back when those things existed and my boss was an Elvis impersonator.

Matt: 00:34:46

That was not my choice, he put Elvis movies on and I worked shifts of eight hours a day.

Matt: 00:34:52

Do you know how many Elvis movies I’ve seen on repeat in my life?

Matt: 00:34:56

It’s more, if any answer more than zero is too many and my answer is way, way more than zero, but Yeah, I really, I have found this over and over again you can only control so much.

Matt: 00:35:10

If you’re an entrepreneur you’re going out and business, you can control your team, right.

Matt: 00:35:14

You can also control hiring your boss intelligently because if your boss is you and

Mike: 00:35:18

Do your best.

Matt: 00:35:19

putz, then you know, maybe you should.

Matt: 00:35:21

Yeah right, exactly, Maybe you should not go off and start your own business, but it’s harder to control the team.

Matt: 00:35:28

It’s if, to the extent that you get a choice, finding someone who will invest in you to me, that’s part of the calculus of investing in yourself and thinking about that long-term just purely from a financial standpoint, that longer-term trajectory, because that will get you further, faster than taking a seemingly higher title job who is not in your.

Mike: 00:35:53

Yeah, that’s right.

Mike: 00:35:54

And I want our next podcast episode to feature every Elvis, quote and movie that you can think about so.

Matt: 00:36:02

Oh, gosh, you know, it was even worse than that was that the video store was a chain of three video stores on the upper west side of Manhattan owned by a family that occurs that was using said video stores as a front for a drug running operation, I was the front clerk in high school for a drug operation.

Matt: 00:36:24

Apparently, please.

Matt: 00:36:25

DEA don’t come knocking on my door when I say this this was like 30 years ago, folks, but like good gravy.

Matt: 00:36:32

David Gergens rules of

Mike: 00:36:33

Well, it just shows you watch out for Elvis.

Matt: 00:36:37

So whichever was, so, I mean, bottom line, this.

Matt: 00:36:42

The whole theme of this episode has been that we often think way too narrowly and of course it’s financial planning.

Matt: 00:36:51

So of course we think about the mechanics of your portfolio, your retirement, your IRA, your Roth, IRA, your backdoor, Roth IRA, and all of those things.

Matt: 00:37:00

That’s the bread and butter here, but it really is in the context of a much bigger picture and we’ve done shows on budgeting and spending, but it is in a much bigger picture of how you’re living your life and how you’re investing in your point is there’s a major financial consequence to this.

Matt: 00:37:17

And if we’re, if we’re just fussing around with all of the mechanics we’re missing, the bigger picture that probably has more to do with our financial success over time than just how much did we contribute to our RA.

Mike: 00:37:34

Yeah, I love the way you put that fussing around because a lot of times I feel that’s what it is.

Mike: 00:37:39

Like people come in with all the jargon and they’ve seen the stuff and they’re like reading, oh, I should be doing this and that and it’s of course all this stuff’s important it’s got its place, but really first you have to spend less than you make, save and invest the difference and what we’re highlighting today is the bigger, the difference i.e., The more you could grow your human capital, the biggest impact that’s going to have on your financial future without question.

Matt: 00:38:09

And I just want to bring in one other point, because a really useful concept that a friend of mine introduced to me many years ago.

Matt: 00:38:18

So this friend he’s in a high earning job that leaves him little time for much else and his spouse was in a lower earning job, but she was doing a ton of charitable work, and her work had a much greater social impact.

Matt: 00:38:32

He introduced me to the idea of household EP.

Matt: 00:38:35

Which I find so incredibly useful, which is if you think about your house as a little country, and you don’t think in terms of your own and for people without partners out there, I’m speaking mostly of the people with partners out there.

Matt: 00:38:49

If you think about it in those terms, rather than in terms of your own career, you really can’t hit your broader life goals, much more readily if you think about, look, we need a certain amount of output of childcare, a certain amount of output of earnings, we need a certain amount of output of we need to invest in our community and you’re doing it together.

Matt: 00:39:09

And this is really relevant from a financial standpoint, because there are times where you’re going to trade off with your spouse and you’re going to make a certain kind of investment in the long-term earnings potential of your spouse so, like I said, my wife’s a doctor when your spouse is in residency, their income is very low and you’re implicitly subsidizing that period by trying to take care of everything else, because they’re going to have higher earnings potential later.

Matt: 00:39:37

And you’re constantly doing those things hopefully for your spouse it’s a broader calculation that also goes to the same underlying point that you really need to think in terms of that big.

Mike: 00:39:49


Mike: 00:39:49

Yeah, absolutely.

Mike: 00:39:50

And I think we should expand it Matt, to not just, partners and families, but to friends so I’ll take on the role of making the more income and doing that.

Mike: 00:39:58

And you take on the role of doing the more charitable stuff for the two of us, and then we could feel great together.

Matt: 00:40:03

I, you know, that’s, that’s a really spectacular idea.

Matt: 00:40:07

I feel like there’s a catch here somewhere, but I can’t see what it.

Matt: 00:40:10


Mike: 00:40:11


Matt: 00:40:11

I’ve got a question for you now.

Matt: 00:40:13

Look in the game of life Is it part of your strategy to sell your children at the end, because that is one of your options, and when you play the game of life with your actual real life children, do you sell your game of life, children in front of your real life children?

Mike: 00:40:28

I’m hoping that’s an option at some point, I’m waiting for someone to come along and offer me, you’ve done a pretty good job with your kids okay job.

Mike: 00:40:35

Here, I will give you a here’s what I’ll give you.

Mike: 00:40:37

That would be fantastic this will be another episode, Matt.

Mike: 00:40:39

It turns out the more you think about it, kids are very expensive.

Matt: 00:40:44

Kids are extremely expensive, but I was actually going to point just in case my kids are listening to this podcast, which is, I knew you were being tongue in cheek about kind of expanding.

Matt: 00:40:54

GDP view too, you know, not just you and your spouse, but look, we do these kinds of investments on behalf of our kids all the time, you were just talking about this in a recent episode where it’s like, you were kind of letting me mentally off the hook for the fact that, I’m not going to be able to afford my kid’s college education.

Matt: 00:41:12

If they’re lucky enough to go to college And you’re like, don’t worry about it.

Matt: 00:41:14

We all end up in this boat, but you’re making this investment for them as well.

Matt: 00:41:19

And it’s another example of we’re investing long-term, and thinking about human capital and we don’t just do it for ourselves.

Mike: 00:41:28


Mike: 00:41:28

Yeah, that’s right.

Mike: 00:41:29

And I really need to figure out a way to get from three kids to, to two or one kids that would really help out financial situation

Matt: 00:41:34

Just listen, just give him a spreadsheet, give him a spreadsheet about the expected returns to the investment you’ve made in their future.

Matt: 00:41:42

All right, we’re going to have to,

Mike: 00:41:44

Here’s your contribution.

Matt: 00:41:46

Mike Morton, thanks for a really interesting company.

Mike: 00:41:49

Thanks Matt.

Mike: 00:41:50

Thanks for joining us on financial planning for entrepreneurs.

Mike: 00:41:54

If you like, what you heard, please subscribe to and rate the podcast on Apple iTunes, Google play Spotify, or wherever you get your podcasts.

Mike: 00:42:02

You can connect with me on linkedin or

Mike: 00:42:08

I’d love to get your feedback.

Mike: 00:42:09

If you have a comment or question, please email me at >.

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What is Human Capital and Why Does it Matter?

Episode 65 •

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